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News & Press: Opinion

SARS’ Extended Powers To Recover Tax Debt

10 September 2013   (3 Comments)
Posted by: Author: Cecilia Stassen
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 Author: Cecilia Stassen (Mazars)

The 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.

The increased 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 liability.

Following the 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 appeal.
  • Lodge 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.

Irrespective of 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.

However, the 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.  

In summary, SARS may collect debt from the following persons:

·         Representative taxpayers

A representative 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.

·         Withholding agent

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 tax.

·         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.  

Any 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.

Responsible third 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 investments.  

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 market value.
  • 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 the case. 

In addition to the notice issued in February 2012[1], 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[2] 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 finances.

With SARS’s 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 tax liabilities.

[1]Government Gazette 35090

[2]Government Gazette 36346

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Comments...

Mahlodi Phahlamohlaka says...
Posted 27 January 2014
I recently arranged for my client to pay the outstanding amount in instalments. The amount is with the debt collection dept. I went in to a Sars branch and they approved the six months instalment. The debt collector called and was fuming to say we were suppose to arrange with them. They wanted to sent me the affordability forms. I refused them as already we have authorisation from sars. Is the debt collection department working outside SARS? If Sars approved the arrangement will it be cancelled just so the debt collection should be the one to authorise the arrangement?
Rene V. Wuis says...
Posted 19 September 2013
I've also tried to access the assessment - the link still takes us to the SAIT homepage
Ivo C. Zambetti says...
Posted 17 September 2013
The link to the questionnaire doesn't work - takes me to the SAIT home page?

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