On 28 January 2011 the Government Gazette contained a Notice determining the date on which sections 13(1) and 38(1) of the Taxation Law Second Amendment Act, 18 of 2009 shall come into operation. Government Notice no. 50 contained in Government Gazette 33977 provided that 1 February 2011 shall be the date on which sections 13(1) and 38(1) of the Taxation Law Second Amendment Act, 2009 shall come into operation. In order to ascertain the import of the abovementioned Government Gazette it is necessary to refer to the provisions of section 13(1) of the Taxation Law Second Amendment Act, 2009. Section 13(1) of the said statute substitutes the existing provisions contained in section 88 of the Income Tax Act, Act 58 of 1962, as amended (“the Act”).
The Government Gazette was issued on Friday 28 January 2011 and provides that the rules contained in the new version of section 88, which will be dealt with below, will come into operation on 1 February 2011. The Commissioner: South African Revenue Service (“SARS”) placed the Government Gazette’s notice on its website when it was issued and later, on 14 February 2011, issued a media release for the benefit of taxpayers setting out the consequences of the Government Gazette referred to and more importantly how SARS will deal with the new rules contained in section 88 in practice.
The old version of section 88 of the Act regulated the payment of tax pending an appeal. It did not deal with the position where a taxpayer had lodged an objection and SARS had not made a decision on that objection.
Section 88 of the Act now regulates the payment of tax pending an objection or appeal lodged by a taxpayer.
It must be remembered that the Constitutional Court in Metcash Trading Limited the Commissioner: SARS 2001 (1) SA 1109 (C) held that the provisions of section 36 of the Value-Added Tax Act, 89 of 1991 (“the VAT Act”) which requires a taxpayer to “pay now, argue later” was constitutionally valid. Section 88 of the Act is identical to section 36 of the VAT Act.
The Commissioner: SARS has the power to postpone the payment of tax pending the finalisation of an appeal. The old section 88 did not specify the criteria that SARS should take into account to determine whether a taxpayer should be granted a postponement of payment of tax pending finalisation of an appeal. The Constitutional Court held in Metcash that any decision made by the Commissioner on a taxpayer’s request to postpone the payment of tax pending an appeal is subject to the rules of administrative justice as a decision made under section 88 constitutes administrative action as envisaged in the Constitution.
A result of the Government Gazette referred to above the new provisions of section 88 took effect on 1 February 2011 and now deals with the powers of SARS to recover tax even though the taxpayer’s objection or appeal has not been finalised.
Section 88 makes it clear that a taxpayer is entitled to request that SARS suspends the payment of any tax or a portion thereof due under an assessment where the liability to pay that tax is disputed by lodging an objection or appeal.
Section 88(3) of the Act now provides that the Commissioner may suspend the payment of the tax in dispute by having regard to the following criteria:
- the compliance history of the taxpayer;
- the amount of tax involved;
- the risk of dissipation of assets by the taxpayer concerned during the period of suspension;
- whether the taxpayer is able to provide adequate security for the payment of the amount involved;
- whether payment of the amount involved would result in irreparable financial hardship to the taxpayer;
- whether sequestration or liquidation proceedings are imminent;
- whether fraud is involved in the origin of the dispute;
- whether the taxpayer has failed to furnish any information requested by the Commissioner in terms of the Act for purposes of a decision under section 88.
Where a taxpayer receives an additional assessment or an assessment which does not agree with the tax return submitted by them to SARS they have the right to lodge an objection to that assessment if they are disagree with the assessment issued by SARS. At the time that the objection is formulated the taxpayer should decide whether to either pay the tax and know that if they succeed with their objection or appeal they will receive the tax paid by them together with interest. However, where a taxpayer chooses not to pay the tax they will need to apply for the postponement of payment under section 88 and in the event that their objection does not succeed they will be liable for interest from the second date of the assessment issued to them. Interest may become substantial where the dispute takes a long time to be finalised.
Taxpayers need to be aware of the requirements contained in section 88(3) of the Act and should submit a formal application by way of a letter requesting postponement of payment pending finalisation of an objection or appeal and show that each of the criteria mentioned above have been complied with.
If, for example, a taxpayer has failed to submit tax returns regularly or SARS has a concern that the taxpayer will dissipate assets or where the taxpayer is on the brink of insolvency, SARS will not grant a postponement under section 88.
Section 88(4) of the Act now provides that SARS may refuse a request for postponement or may revoke a decision to suspend payment where SARS is satisfied that:
- after the lodging of the objection or appeal, the objection or appeal is frivolous or vexatious;
- the taxpayer is employing dilatory tactics in conducting the objection or appeal;
- on further consideration of the factors contemplated in section 88(3), the suspension should not have been given;
- there is a material change in any of the factors described in section 88(3) upon which a decision to suspend the amount was based.
Thus, even though a taxpayer may secure a postponement of payment of tax under the section, SARS has the power to revoke that decision where SARS believes that the objection which was lodged is frivolous and without substance or that the taxpayer is unduly delaying the objection and appeal process.
Where a taxpayer succeeds with their objection and has paid the tax that was reflected on the additional assessment they will receive the tax back from SARS together with interest thereon. Previously section 88 only required interest to be paid where the assessment was reduced pursuant to an appeal being allowed or conceded. The new section is more equitable than the old rules.
By virtue of the fact that the new rules contained in section 88 are now in force the question arises as to what taxpayers should do where they have existing disputes with SARS and have previously secured a suspension of payment from SARS for that dispute.
Section 13(2) of the Taxation Laws Second Amendment, Act 2009 provides that any prior suspension granted by SARS will expire on the earlier of the date on which that postponement or suspension was due to expire or within 6 months from 1 February 2011, that is, 31 July 2011.
It must be noted that section 36 of the VAT Act has been amended along the lines referred to above and should a taxpayer request a postponement of payment for a dispute under the VAT Act the same criteria referred to above will need to be adhered to under the provisions of section 36 of the VAT Act.
Where a taxpayer receives an additional assessment a decision must be made whether to lodge an objection against that assessment and if so, a call must be made whether to pay the tax due or alternatively to seek postponement of payment under section 88 of the Act or in the case of a VAT matter under section 36 of the VAT Act. With effect from 1 February 2011 it is necessary to comply with the criteria referred to above, failing which SARS will not accede to the request for suspension of payment pending finalisation of the objection or appeal. It must be noted that where SARS refuses a taxpayer’s request to postpone payment subject to objection or appeal the taxpayer may not object or appeal against that decision under the provisions of the Act. The taxpayer would be required to pursue the matter in the High Court on the basis that SARS has not complied with its obligations under the Promotion of the Administrative Justice Act, 3 of 2000 (“PAJA”). SARS, in determining whether a taxpayer should be granted a suspension of payment, must adhere to the rules of administrative justice contained PAJA and where it fails to do so a taxpayer should succeed in having the decision reviewed by the High Court.