Pay Now, Argue Later
20 April 2012
Posted by: TaxFind ™
Pay Now, Argue Later
With effect from 1 February 2011, the rules contained in section 88 of the Income Tax Act and section 36 of the Value-Added Tax Act apply, and taxes will be payable once assessed. Taxpayers will be required to apply for a suspension of payment where required. Without the suspension of payment, SARS will follow collection procedures.
SARS has many provisions available to assist in the collection of outstanding taxes, which includes interest charge, penalty taxes, off-set against other tax refunds, appointing an agent, personal liability some circumstances, obtaining a judgement followed with a sale of assets, and pursuing sequestration/liquidation.
It all starts with an assessment. Assessed taxes are due and payable, regardless of the taxpayer’s disagreement in regards the assessment value. SARS has placed significant reliance on the Metcash Trading case to validate the pay-now-argue-later principle. The reality is that the Metcash Trading case was with regards to Value-Added Tax and not Income Tax. Also, subsequent two conflicting high court decisions with regards to the application of section 91(1) of the Income Tax Act in which SARS filed for judgement against the taxpayers while the tax amounts were under dispute has only compounded the confusion.
Also, the courts had to address the issue of when a VAT liability is due and if SARS is required to first issue an assessment before pursuing judgement against the vendor. Again, these cases have left us with conflicting decisions. The suspension of payment is not automatic when lodging an objection. The taxpayer must request the suspension of payment, which is subject to the Commissioner’s discretion.
Section 88(3) of the Income Tax Act provides that ‘The Commissioner may suspend payment of the disputed tax having regard to-
a) The compliance history of the taxpayer;
b) The amount of tax involved;
c) The risk of dissipation of assets by the taxpayer concerned during the period of suspension;
d) Whether the taxpayer is able to provide adequate security for the payment of the amount involved;
e) Whether payment of the amount involved would result in irreparable financial hardship to the taxpayer;
f). Whether sequestration or liquidation proceedings are imminent;
g) Whether fraud is involved in the origin of the dispute;
h) Whether the taxpayer has failed to furnish any information requested by the Commissioner in terms of this Act for purposes of a decision under this section.’
The legislation gives no indication with regards to weight assigned to each of these criteria. SARS has issued no guideline in this regard as yet. I would submit that the facts that SARS would give significant weight in considering an application for suspension of payment to include the compliance history of the taxpayer, the amount of tax in dispute (low value has less risk, while higher values have greater risk but also could cause greater financial hardship), the risk that the taxes will not be collected, and whether the objection has merit or is merely frivolous or an intentional attempt to delay payment. Even if suspension is initially granted, such may, in some cases, be subsequently withdrawn.
The taxpayer will be entitled to interest from the date of payment till the date of refund where the dispute was resolved in the taxpayer’s favour. It has become a common occurrence for vendors to receive a VAT review notice, which requires the vendor to submit supporting documentation. Failing which, SARS will issue an additional assessment writing back the full value of the input tax deductions claimed for the period. The vendor will now be required to lodge an objection together with the supporting documentation to substantiate their entitlement to the input tax deductions. That value of the input tax, together with interest and penalties, will be due and payable to SARS, and it has become common practice for SARS to pursue judgement against the vendor. These types of assessments and disputes should be avoided.
Generally, SARS will issue a letter of findings after completion of an audit. This letter of findings should be used as an opportunity to address any misunderstandings or errors prior to the resultant assessment. Take every opportunity to minimise the value of assessed tax that will be disputed.
The Tax Administration Bill has been signed into law and awaits promulgation. It is anticipated that this new tax administration legislation will be implemented during 2012. This new tax administration legislation will introduce further assessing and collection powers for SARS, and introduces further provisions with regards to pay-now-argue-later by means of the taxpayer providing security for tax debts.
Source: By SAIPA Tax Committee (Tax Professional)