Recovery of Taxes: A Constitutional Problem for SARS?
18 March 2013
Posted by: Author: Alan Lewis
Source: Alan Lewis
Prior to the promulgation of the Tax Administration Act, Act 28 of 2011, ("the Act”), the Minister of Finance assured taxpayers, that the Act would meet the requirements of the Constitution.
For the reasons which are set out below, it appears as though this assurance was possibly premature, particularly with regard to those provisions of the Act, which deal with the recovery of taxes.
The most important provisions, which deal with this subject, are contained in sections 172, and 174, of the Act. Section 172 reads as follows:
(1) If a person fails to pay tax when it is payable, SARS may, after giving the person at least 10 business days notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct.
(2) SARS may file the statement irrespective of whether or not the amount of tax is subject to an objection or appeal under Chapter 9, unless the obligation to pay the amount has been suspended under section 164.
(3) SARS is not required to give the taxpayer prior notice under subsection ( 1) if SARS is satisfied that giving notice would prejudice the collection of the tax.
What is the effect of SARS filing this statement?
This is described as follows in section 174 of the Act:
"A certified statement filed under section 172 must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement."
When is a tax ‘payable?
The problem is that the Act does not provide an answer, to this important question. Consequently, we need to consider case law, to do so.
In the matter of Singh v Commissioner for the South African Revenue Service, 2003 (4) SA 520 SCA, the Supreme Court of Appeal considered the meaning of ’payable’, in the context of the Value-Added Tax Act, Act 89 of 1991 ("the VAT Act”), and came to the conclusion, that it meant "a future or contingent liability” (page 534 paragraph 54 of the judgment). In other words, it refers to a liability, which has not been finally determined. I submit that the same meaning, will be applied by other courts, which are requested to determine the meaning of ‘payable’, in section 172 of the Act.
The court also found that, where an assessment has been issued, the assessed tax, becomes due, or finally determined, and is subject to collection proceedings, in terms of the VAT Act, in two instances. Firstly, where the taxpayer has failed to object, within the prescribed period, for doing so, or, secondly, in the case where an objection has been lodged, and withdrawn, or, where SARS has informed the taxpayer, of its attitude to that objection.
According to this judgment, prior to these two events, the assessed tax is only payable, and not subject to collection proceedings.
In terms of the common law, and in normal civil proceedings, a court will only grant judgment, for the payment of a debt, which represents an unconditional obligation on the debtor, to pay that amount immediately. In other words, the amount of the debt is certain, and not subject to further determination.
By using the word ‘payable’, in section 172 of the Act, it appears that Parliament unfortunately granted SARS the right to obtain a civil judgment, against a taxpayer, for payment of an amount, where the existence of, or the extent, of any indebtedness, is still uncertain. In the light of the decision in Singh’s case, this would happen, where SARS files the notice, while it is still considering the taxpayer’s objection, or where the period, in which the taxpayer can note its objection, has not yet elapsed.
In my opinion, any attempt to recover an amount, which does not constitute an unconditional obligation to pay, would violate a taxpayer’s constitutional right to administrative action, which is fair and reasonable. The unfairness and unreasonableness of this legislation, is starkly apparent, when one considers that the effect, of filing this statement, is that SARS obtains a civil judgment against a taxpayer, which it can use, to sequestrate, or liquidate that taxpayer.