Given the current economic climate and the revenue shortfall highlighted by the Minister of Finance Tito Mboweni in June 2020, it is not impossible to imagine that the South African Revenue Service (SARS) will be looking at all avenues to collect taxes due.
The good news though, is that despite having relatively wide collection powers, these powers are not unfettered, as was recently held by the High Court in SIP Project Managers (Pty) Ltd v The Commissioner for the South African Revenue Service (Case Number 11521/2020).
In this case, the High Court set aside a third party notice issued by SARS to withdraw an outstanding tax debt from a taxpayer’s bank account. In particular, section 179 of the Tax Administration Act 28 of 2011 (TAA Act) allows SARS to issue third party notices to collect outstanding tax debts. However, prior to issuing the third party notice, SARS must comply with Section 179 (5) of the TAA Act, which requires that it deliver a letter of final demand to the taxpayer, at least ten business days before issuing a third party notice.
In June 2019, the taxpayer was issued with an assessment resulting in a refund of approximately R 1.6 million. SARS thereafter conducted a verification and requested supporting documents from the taxpayer. The taxpayer did not furnish the supporting documents requested by SARS, which resulted in SARS issuing an additional assessment, which needed to be settled by 30 September 2019. Unfortunately, the taxpayer’s accountant only became aware of the assessment on 6 February 2020, when the taxpayer informed him that its bank had received a notification to pay an amount of R 1 262 007 to SARS from its bank account. The third party notice was issued to the bank on 3 February 2020.
The taxpayer alleged that it had not received any notification of the letter of final demand on its e-filing profile. In addition, the SARS contact centre had confirmed that the letter of final demand was not loaded onto the taxpayer’s profile. The SARS official who issued the letter of final demand alleged that she had issued demands on 7 September 2019, 11 September 2019 and 22 January 2020. SARS subsequently abandoned relying on the letters of demand, dated 7 September 2019 and 11 September 2019, as they did not comply with Section 179 of the TAA Act.
With regards to the letter of final demand dated 22 January 2020, SARS failed to establish delivery or prove that the letter of final demand was posted on the taxpayer’s e-filing profile. As a result, the court found in favour of the taxpayer that the letter of final demand was not “delivered” and that SARS had failed to comply with the peremptory requirement provided for in terms of Section 179(5) of the TAA Act.
In addition, the court emphasised that Section 179(5) of the TAA Act was introduced to limit the powers of SARS in the recovery of outstanding tax debts by means of the issue of a third party notice without first advising the taxpayer. The court accordingly declared the third party notice null and void and ordered SARS to repay the amount of R 1 262 007.00 to the taxpayer, together with interest from the date of payment of the amount to SARS by the bank.
Whilst SARS may have wide ranging collection powers, it is still required to go through the prescribed process and more importantly, demonstrate that this process was followed. It is therefore important for taxpayers to ensure that they are aware of what SARS can and cannot do in terms of the collection of their taxes. More importantly, should taxpayers not be in a position to pay their outstanding taxes, it is advisable that they approach SARS in order to agree on a settlement plan, so as ensure that there are no surprises down the line. This can either be done though the normal SARS channels or, in the current COVID-19 era, through the SARS COVID-19-specific deferment programme, details of which can be found here:
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