SARS’ Extended Powers To Recover Tax Debt
10 September 2013
Posted by: Author: Cecilia Stassen
Author: Cecilia Stassen (Mazars)
introduction of the Tax Administration Act (‘the TAA’) in 2012 has
significantly changed the tax debt collection arena by considerably increasing
the powers SARS has to collect tax debts from taxpayers. Although SARS has always had various avenues
available to them for the collection of taxes, the combination of access to
information and powers afforded to it in the TAA has turned SARS into a
formidable debt collection force.
debt collection powers set out in the TAA and discussed herein apply to any tax
and other related charges imposed by SARS under any tax Act, excluding any
charge levied under the Customs and Excise Act.
In addition to
new debt collection avenues, the TAA also provides for instances in which SARS
may require a taxpayer to provide security for the tax liability. Where the taxpayer is a juristic person and
unable to provide the security, SARS will require any or all members,
shareholders or trustees who control or are involved in the management of the
taxpayer to enter into a contract of suretyship in respect of the tax
introduction of the TAA, SARS has the following options available for the collection
of tax debts in the form of formal applications:
- SARS may apply
to the High Court for a preservation order in respect of the taxpayer’s assets,
which prohibits him from transacting with certain assets. Interestingly, the
TAA does not specify the instances in which such an order may be made (e.g.
evidence that the taxpayer is planning to dispose of assets without settling
tax debts) and the decision is left to the discretion of the SARS official.
- Lodge an
application for a civil judgement against the taxpayer in respect of the debt,
irrespective of whether the assessment of the taxes is subject to objection and
an application with the High Court for the compulsory repatriation of foreign
funds or assets of a taxpayer in certain instances to cover tax debts.
- The power
to institute sequestration or liquidation proceedings against a taxpayer.
the above, SARS retains the power to seize assets of the taxpayer prior to
obtaining a court order if it is of the opinion that the collection of the
taxes may be in jeopardy.
most significant impact of the changes is the ability of SARS to collect the
tax debt from the taxpayer’s representatives, agents, connected persons and
‘responsible third parties’ which could include debtors, banks and employers of
the taxpayer rather than through formal court proceedings.
SARS may collect debt from the following persons:
taxpayer is the natural person appointed as responsible person for the taxes of
a juristic person and includes representative taxpayer and representative
employer in terms of the Income Tax Act and a representative vendor in terms of
the Value-Added Tax Act.
In short, over and
above his usual duties and liabilities, a representative taxpayer can now be
held personally liable for the tax debt of the taxpayer if he pays other
creditors, dividends or acquires assets with funds received instead of paying
tax debts due to SARS.
A withholding agent is
any person who must withhold tax in terms of a tax act (e.g. an employer
withholding PAYE) and will be held personally liable for the tax if he withheld
the tax but did not pay over the funds to SARS or if he failed to withhold the
Responsible third party
A ‘responsible third
party’ is one of the most significant additions in terms of the TAA. It refers
to a person who becomes otherwise liable for the tax liability of another
person who holds, owes or will hold or owe any money (including pension,
salary, wage or other remuneration) for or to a taxpayer will be required to pay
the money to SARS in satisfaction of the taxpayer’s tax debt rather than pay the
money to the taxpayer.
If the third party parts with the money
contrary to the SARS notice, the third party is personally liable for the
money. SARS has the same powers to
recover taxes from the responsible third party that it does to recover the
taxes from the taxpayer.
parties will include employers, trade debtors and any persons owing money to a taxpayer
on loan account. It furthermore includes
any bank or other financial institution at which a taxpayer has deposits or
Where the taxpayer
needs these amounts owed to him (e.g. salary) to cover living expenses, a
request will have to be lodged with SARS for an amendment of the notice sent to
the responsible third party to allow the party to pay the funds to the taxpayer
instead of SARS.
Other responsible parties
The following parties
may also be held personally liable for the taxpayer’s tax debts in certain
instances, subject to certain exceptions:
- A person
who controls or is regularly involved in the management of the overall
financial affairs of a taxpayer is negligent or commits a fraud as a result of
which the taxpayer fails to pay tax.
- Where a
company (other than a listed company) is wound up in any way other than by
involuntary liquidation without discharging all tax debts, the persons who were
shareholders for one year prior to winding up are jointly and severally liable
for the tax debts.
- A connected
person to the taxpayer who receives an asset for a consideration below fair
- Any person
who knowingly assists a taxpayer in disposing of assets to obstruct the
collection of tax debt is jointly and severally liable.
It may be
argued that SARS does not have access to the information required to make the
above requests for payments, but unfortunately that is no longer necessarily
In addition to
the notice issued in February 2012,
requiring ‘reporting institutions’ (e.g. banks) to submit bi-annual returns to
SARS containing certain information on each account held at the institution,
and the notice issued in April 2013
requiring additional third party returns to be lodged detailing a wide variety
of transactions, the TAA has further extended SARS’s ability to request
information on a taxpayer or ‘objectively identifiable class of taxpayers’ from
another person. Through these
information gathering techniques, SARS may be able to obtain extensive information
surrounding a taxpayer’s business, transactions, connected persons and personal
access to information and powers provided by the TAA, we have seen an increased
appointment of employers and banks as agents in terms of the provisions
discussed in this article. These persons have been instructed to withhold and
pay over taxes owed by taxpayers to SARS, sometimes even resulting in the
taxpayer’s bank account being emptied of all funds.
In future, taxpayers need to
consider the increased collection powers that SARS has at their disposal when
deciding upon the allocation of cash resources to settle obligations other than
Government Gazette 36346
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