The new Tax Administration Act No 28 of 2011 (“TAA”) was promulgated with the effective date of 1 October 2012 and while expected to have extend taxpayer rights, it also re-affirmed and extended the powers of the South African Revenue Services (”SARS”). 

 

SARS’ objective remains the efficient and effective collection of tax revenue and the TAA is geared to assist it with meeting this objective. Tax evaders and non-compliant taxpayers can expect to face more strict enforcement action, assessment of taxes and the collection thereof. It is therefore imperative for taxpayers to toe the line in administering their taxes and taking correct decisions with regards to potential contentious matters.

 

However, once returns are filed and assessments are raised taxpayers must pay the taxes that arise.  SARS has always believed in the mantra “pay now argue later” with regards to tax collections but in practice it was not always readily enforced across the board. The TAA however re-enforces that principle and SARS is set to follow the process as laid down.

 

Taxpayers who are aggrieved by assessments raised by SARS must therefore not only enter into dispute resolution process with regards to the assessment but must also approach SARS with a formal request to suspend collecting the tax arising from the disputed assessments. Merely arguing with SARS regarding the assessment may therefore lead to the taxpayer still facing serious collection action which SARS has the right to institute despite the taxes being disputed.

 

A two-pronged approach is required in all these circumstances.  However, merely filing a payment postponement request without confirmation that SARS has agreed to it is also not wise. It must be ensured that there is regular follow up on the progress with regards to the collection of the taxes until such time as SARS has issued the confirmation of suspension.

 

When deciding on whether a dispute must be lodged against an assessment, care must also be taken to ensure when the action for collection will start. If it is to start   before the dispute is filed, an application based on the intended dispute must then be filed with SARS first.

 

It is, however, not a given that SARS will postpone or suspend the collection action when a taxpayer wishes to enter into a dispute and makes the request to suspend collection. SARS will consider various factors before suspending collection action. First and foremost it will consider the taxpayer’s compliance history. This is yet another reason why taxpayers must ensure that tax filings and payments are made as and when required.

 

A taxpayer’s compliance history will also be taken into account, i.e. were there regular or serious transgressions in the past, did the taxpayer apply for voluntary disclosure relief or amnesty in the past or has the taxpayer been unsuccessful in various disputes in the past. Being a model taxpayer therefore assists taxpayers’ cases in such situations. This is not to say that taxpayers with a poor record will not be successful but their application may require more meat to the bone.

 

Another factor SARS will consider is the amount of tax in question. There is no guidance as to whether a small or large amount will receive more favourable attention but the amount of taxes may be linked back to the context and situation of the taxpayer. 

 

Another factor to be considered by SARS is whether it believes that there is a real risk of the assets of the taxpayer being reduced during the period of the dispute which may jeopardise the collection of the taxes at a later stage. SARS may require the taxpayer to provide security for the amount in question.

 

SARS would consider whether the amount in question would provide financial hardship to the taxpayer if immediate payment is required as would be the likelihood of the liquidation or sequestration of the taxpayer. Another consideration would be whether the assessment raised by SARS contained elements of fraud or intentional tax evasion on the part of the taxpayer.

 

A request for suspension would only be considered if it is filed with SARS in the prescribed format and if the taxpayer is able to supply all the information called for by SARS at that time. SARS will deny requests for suspension if it believes the dispute action is frivolous and if there is a material change in the taxpayer’s position and factors upon which the application is based. The suspension of tax collection will also automatically lapse if the dispute is not lodged or SARS has ruled against the taxpayer in the relevant dispute.

 

Taxpayers who are issued with assessments must therefore make two decisions:

• Will the assessment be accepted – in which case the taxes must be paid; or
• Will the assessment be disputed - in which case the dispute must be lodged.

 

Where taxpayers decide on the second option they must ensure that they not only adhere to the rules of dispute resolution, but also that the matter of collecting the tax is also addressed to avoid potential action instituted by SARS.