In order to create a more uniform system for the administration of taxes in South Africa, section 191 of the Tax Administration Act, 2011 (the “TAA”) has effectively replaced various refund and set-off provisions which appeared in respective tax acts.
Section 191 of the TAA now provides that all tax debts that are due must be set-off against refunds, including the interest thereon, due by the South African Revenue Service (“SARS”) to that taxpayer.
Section 191 has, since 2011, regulated refunds subject to set-off. It provides as follows:
“191. Refunds subject to set-off and deferral
(1) If a taxpayer has an outstanding tax debt, an amount that is refundable under section 190, including interest thereon under section 188 (3) (a), must be treated as a payment by the taxpayer that is recorded in the taxpayer’s account under section 165, to the extent of the amount outstanding, and any remaining amount must be set off against any outstanding debt under customs and excise legislation.
(2) Subsection (1) does not apply to a tax debt—
(a) for which the period referred to in section 164 (6) has not expired or suspension of payment under section 164 exists; or
(b) in respect of which an instalment payment agreement under section 167 or a compromise agreement under section 204 applies.
(3) An amount is not refundable if the amount is less than R100 or any other amount that the Commissioner may determine by public notice, but the amount must be carried forward in the taxpayer account”
The provision, however, does not provide SARS with the discretion or power to withhold tax refunds in order to satisfy future tax debts (ie tax debts that are as yet not due). Further, there is no application process or written submission process that a taxpayer may utilise to request SARS to retain a refund which is currently due, to satisfy future tax debts. The power of SARS, in this respect, is therefore limited to the set-off of a refund (due to the taxpayer) against outstanding amounts of tax.
To the extent that refunds have been determined to be due to the taxpayer in respect of specific taxes, for specific tax periods, that refund must only be set-off against outstanding tax debts that are currently due.
Section 190 of the TAA and the limitation on the withholding of refunds
Section 190(1) of the TAA provides that a taxpayer has a right to any refund due to it by SARS, however, this right is limited by section 190(2) of the TAA, ie, where the verification, inspection or audit of the refund has not yet been finalised, SARS may withhold such refund. The limitation in section 190(2), however, only relates to the verification, inspection or audit in respect of the particular refund that is due to the taxpayer, and not any verification, inspection or audit under a tax act:
“190. Refunds of excess payments
(1) SARS must pay a refund if a person is entitled to a refund, including interest thereon under section 188 (3)(a), of— (a) an amount properly refundable under a tax Act and if so reflected in an assessment; or (b) the amount erroneously paid in respect of an assessment in excess of the amount payable in terms of the assessment.
(2) SARS need not authorise a refund as referred to in subsection (1) until such time that a verification, inspection or audit of the refund in accordance with Chapter 5 has been finalised.
(3) SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer. […]”
The Explanatory Memorandum on the Objects of the Tax Administration Bill, 2011, provides further clarity on this point, and states that:
“Furthermore, a refund need not be authorised by SARS until such time that a verification, inspection or audit of the refund has been finalised [ie not an audit in respect of any tax, rather it only refers to an audit in respect of that particular refund]. A taxpayer will remain entitled to interest from the later of the effective date or date that the overpayment was made, to the date of the payment of the refund by SARS after finalisation of the verification, inspection or audit. SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer”
SARS is, therefore, not permitted to withhold a refund in respect of one assessment, because a different assessment is under verification, inspection or audit. For example, SARS may not withhold an income tax refund because a securities transfer tax assessment is under audit. SARS would only be able to withhold the income tax refund because the audit in respect of that refund is still on-going, and no sufficient security for that refund has been given to SARS (sections 190(2) and 190(3) of the TAA).