“Pay Now, Argue Later” Principle: When Must You Pay SARS?
03 June 2016
Posted by: Author: Ben Johannes
Author: Ben Johannes (SAIT)
The best way to deal
effectively with one of the most controversial principles in tax collection is to
understand it’s intricacies. We delve into the "pay now, argue later principle”
to prepare you should it arise as an issue for one of your clients.
In general commercial
litigation where a claim for an outstanding amount is brought against a person,
the person is not required to make payment to the claimant until a court has
adjudicated on the issue.
However, in terms of tax
matters SARS is entitled to collect amounts owing by a taxpayer in terms of an
assessment. Although there are various remedies that the taxpayer can follow if
they disagree with the assessment, in most instances the taxpayer will be
required to pay the amount claimed by SARS regardless of the validity of their
objection and hope to later reclaim the amount disputed.
This is known as the "pay
now, argue later” principle where the payment of tax is not suspended pending
an objection or an appeal, unless directed otherwise. The reason for the
existence of this principle is to ensure effective and prompt collection of
The "pay now, argue later”
principle is firmly established in our law and has been codified as part of the
Tax Administration Act. This article looks at the basis of the principle and what
it means for when a taxpayer must pay SARS. It considers the various prescribed
factors that must be taken into account, especially, SARS’ ability to collect a
tax debt from third parties such as a taxpayer’s bank, as well as the use of jeopardy
Although controversial, the principle is firmly rooted in
While the "pay now, argue
later” principle is part of our tax law, it is true, ex facie, that if the taxpayer convinces SARS or a court that the
assessment was incorrect, and that the tax was not owed to SARS, then the
amount that was not due to SARS must be refunded with interest.
While the possibility of
a refund may sound like an equitable solution, often payment under such
circumstances may cause a taxpayer financial hardship as it may have to fund
the tax payment for a number of years while it pursues its various remedies
The "pay now argue later”
principle was dealt with in the case of Metcash
Trading Ltd v Commissioner, South African Revenue Service  62 SATC
84. In this case, the legality of the concept survived scrutiny by the
Constitutional Court in the context of Value-Added Tax (VAT) when a taxpayer
sought to impugn the VAT legislation contending it to be incompatible with
section 34 of the Bill of Rights, namely the section that guarantees access to
courts. The Constitutional Court upheld the pay-now, argue-later principle.
In the case of Capstone 556 (Pty) Ltd and Kluh Investments
(Pty) Ltd v CSARS  74 SATC 20,Binns-Ward J held that:
In his judgment, Binns-Ward
J went on and said:
"the considerations underpinning the
‘pay now, argue later’ concept include the public interest in obtaining full
and speedy settlement of tax debts and the need to limit the ability of
recalcitrant taxpayers to use objection and appeal procedures strategically to
defer payment of their taxes”.
"There are material differences
distinguishing the position of self-regulating vendors under the value- added
tax system and taxpayers under the entirely revenue authority-regulated income
tax dispensation. Thus the considerations which persuaded the Constitutional
Court to reject the attack on the aforementioned provisions of the VAT Act in
Metcash might not apply altogether equally in any scrutiny of the
constitutionality of the equivalent provisions in the [Income Tax] Act”.
When the Tax
Administration Act (TAA) No. 28 of 2011 was promulgated on 1 October 2012 the "pay-now-argue-later”
principle was retained in section 164 of the TAA.
However the TAA also
contained a section that allows for the principle to be suspended. In terms of section 164 (2) of the TAA, a taxpayer may
request a suspension of the obligation to pay an amount of tax or a portion
thereof under an assessment where the taxpayer disputes or intends to dispute
the liability to pay that tax under the dispute resolution provisions contained
in Chapter 9 of the TAA.
Section 164(3) provides
that a senior SARS official must use their discretion when deciding when to
suspend the payment of the disputed tax or a portion thereof having regard to
the criteria as set out in section. It is therefore important that a taxpayer
understands in which circumstances they may not have to make payment to SARS of
the disputed tax. The section refers to the following relevant factors,
In analysing section 164(3)
(a) – (e)of the TAA it is clear that the list of criteria is not exhaustive. As
explained by Croome & Olivier (2015:379), because of the word "including”
in section 164(3)(a) – (e) of the TAA it can be argued that the criteria in the
list are not the only relevant factors to be considered. Further relevant
factors can be considered when exercising SARS’ discretion, which means that
both the taxpayer and SARS will be able to consider additional relevant factors
not listed in this subsection.
whether the recovery of
the disputed tax will be in jeopardy or there will be a risk of dissipation of
the compliance history of
the taxpayer with SARS;
whether fraud is prima facie involved in the origin of
whether payment will
result in irreparable hardship to the taxpayer not justified by the prejudice
to SARS or the fiscus if the disputed
tax is not paid or recovered; or
whether the taxpayer has
tendered adequate security for the payment of the disputed tax and accepting it
is in the interest of SARS or the fiscus.
It will most likely
depend on the specific circumstances and facts of each matter for SARS to
consider further factors which will be relevant.
SARS extraordinary powers to collect outstanding tax debt
from third parties
In terms of section
179(1) of the TAA, a senior SARS official may require third parties who hold
money of a taxpayer, for example a pension or a salary, to pay the money to
SARS if the owner of the money has debts. If the third party parts with the
money contrary to the notice, section 179(3) stipulates that a party becomes personally
liable for the money.
The payment by a third
party, for example the taxpayer’s bank to SARS in terms of section 179 of the
TAA, does not stem from the debt owed by the debtor, but because of the
obligation that this section places on the bank compelling them to satisfy the
debt of the taxpayer.
Section 179 of the TAA
only applies to amounts of money owed or held. Thus if the nature of the
relationship between the bank and taxpayer is that the bank owes the taxpayer
money or holds such money invariably the bank would have to comply with the
payment instruction in section 179(3) of the TAA.
Furthermore, if the
nature of the right is merely a contractual claim for something other than
money or that it only becomes money owed on maturity, it becomes questionable
whether SARS can enforce any rights against the financial institution until
such time as the rights become enforceable.
especially banks, have accused SARS of not following its own processes when
collecting outstanding tax debt. In many instances banks had to create a
dedicated department to deal with the huge increase in requests for payments.
Taxpayers are often
unaware they have outstanding tax debt. This is because SARS does not contact
the taxpayer before the third-party is appointed to collect the debt. However,
if a taxpayer wants to object to a tax liability the taxpayer must request a
suspension of payment first (Section 164 of the TAA). It should be kept in mind
that objection alone does not suspend the requirement to pay.
Jeopardy assessments (as
provided in section 94 of the TAA), also known as protective assessments, may
be issued in advance of the date on which the return is normally due. This is
to secure the early collection of tax that would otherwise be in jeopardy or
where there is some danger of tax being lost by delay.
In terms of section 94
(3) of the TAA, SARS bears the onus of proving that a jeopardy assessment is
reasonable under the circumstances. A taxpayer has the right to take the matter
on review to the High Court in terms of section 94 (2) of the TAA. Raising of a
jeopardy assessment at a stage before any tax return is due is clearly a
The principle of "pay now
argue later” as enforced by SARS has long been a contentious one.Taxpayers
should also pay attention to correspondence from SARS and should not ignore
SARS requests, but rather communicate any difficulties as SARS might amend the
timeframes for payment. It is clear that taxpayers need to know what their
rights are and when they should take legal action.
Please click here to complete the quiz.
This article first appeared on the May/June 2016 edition on Tax Talk.