SARS have long held that if you have an objection to an assessment you must pay your tax and only then – if your objection is upheld – can you get a refund. The option to allow the taxpayer to suspend payment, until the outcome of the objection was known, has been at the discretion of SARS, and in practice this was seldom allowed prior to October 2012. The potential for taxpayer hardship here is obvious
. Say for example that you have what you believe to be a good case for a substantial reduction in a tax assessment. Yet you have to “pay now, argue later”, and raising the money to enable you to do so is going to hurt your cash flow, if not actually bankrupt you. Also remember that SARS can collect money in dispute not only from you but they may appoint agents to collect monies owing by you – this could be your bank or even your retirement fund. There is, however, some good news in the form of the Tax Administration Act (“TAA”) which came into effect on 1 October 2012. The TAA has given taxpayers some hope that the “pay now argue later” principle has been at least softened in line with one of the aims of the Act, that is to balance taxpayers’ rights with SARS’ desire to strictly enforce compliance. The new procedure – how it works
Per the TAA, if a taxpayer requests that payment of tax be suspended as the taxpayer intends to lodge an objection, SARS may not move to collect this tax until 10 business days from the date of SARS’ response have passed. Thus, while the TAA has allowed taxpayers to buy a modicum of time, the real test is whether SARS will in the end suspend payment until the objection has been dealt with. Once you as a taxpayer go down the objection route, you need to follow a dual approach–
- Formally apply for payment to be suspended, and
- Enter the dispute resolution mechanisms as laid out by the Act.
It is important to get sound tax advice as you don’t want to make an error in this process – for example, you need to closely monitor whether SARS will agree to a payment suspension. The Act lays down criteria for SARS to consider when suspending payment, some of which are:
- The taxpayer’s history of compliance (obviously your chances improve if you have a good compliance record)
- The amount of tax or whether or not SARS officials have reason to believe the risk of not collecting tax may diminish over time (such as the possibility of liquidation of the taxpayer)
- Whether there is fraud or other malfeasance involved
- Whether the taxpayer will face irreparable financial hardship if forced to pay now.
SARS may ask for security if it allows payment to be suspended. If SARS decides not to allow the suspension of payment, then you are still obliged to pay the tax. However, the fact that SARS now has criteria it must apply when considering suspending payment, indicates at least a thaw in the ‘pay now, argue later’ principle.