Relief for taxpayers: “Pay now, argue later” rule clarified

Muneer Hassan, project director: tax at the South African Institute of Chartered Accountants (SAICA)

The “pay now, argue later” syndrome, whether instigated by your local authority or the South African Revenue Service (SARS), is the stuff of which nightmares are made.

It is a problem compounded by an absence of knowledge as to what one’s legal rights may be, says Muneer Hassan, project director: tax at the South African Institute of Chartered Accountants (SAICA).

“Thankfully,” Hassan says, “the rule has at least been clarified – even though not to the satisfaction of all – in the most recent legislative amendments contained in the Taxation Laws Second Amendment Bill, 2009, tabled on September 1.

Previously, he explains, there was some uncertainly as to whether SARS could apply the pay now, argue later rule at the objection stage. Both the Income Tax Act and the VAT Act made it quite clear, though, that the pay now, argue later principle applied at the appeal stage.

The legislative amendments now stipulate that a disputed tax debt could be collected despite an objection to the assessment.

“The taxpayer may, however, request the Commissioner to suspend the payment of any tax due under the assessment,” says Hassan, who points out that the amendments then go on to provide guidance as to what factors should be considered in deciding whether to agree to a taxpayer’s request to suspend payment of the debt.

The factors that SARS will consider are:

· Compliance history;

· The amount of the tax involved;

· Risk of dissipation of assets;

· Ability of the taxpayer to provide adequate security;

· Financial hardship to the taxpayer;

· Imminent sequestration or liquidation proceedings;

· The involvement of fraud; or

· Failure to provide requested information to SARS.

“There are certain instances where SARS may deny a request to suspend payment or revoke a decision to suspend payment,” says Hassan. “SARS may, for instance, deny a request if the objection or appeal is frivolous or vexatious, or the taxpayer employs dilatory tactics.”

He advises that the legislative amendment makes provision for the payment of interest should an amount be collected and later refunded because the objection has been conceded by SARS.

Interest will be paid at the same rate that SARS normally charges on outstanding debt; a rate of 10,5% with effect from 1 September 2009 until further notice.

“The effective date of this legislative amendment is to be determined by way of Gazette notice and will apply to all amounts payable by or to SARS on such date,” says Hassan. “A transitional rule will ensure that suspension of payment granted under the previous legislation will carry over to the new legislation and will lapse on the earlier of the expiry date or six months from the effective date.”

These legislative changes are proposed to both the Income Tax Act and the VAT Act.