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Pay Now Argue Later - The Effect Of The New Legislation

Thursday, 10 September 2009   (0 Comments)
Posted by: Author: Kerry Watkin
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Pay Now Argue Later -The Effect Of The New Legislation

The Memorandum on the Objects of the Taxation Laws Second Amendment Bill  2009 proposes that the Income Tax Act 1962 (the ITA), and Value-Added Tax Act 1991 (the VAT Act),be amended to:(i)clarify that payment is not suspended due to objection; (ii) formalise the circumstances where payment will be required despite objection; and (iii) provide for interest where a payment is made pending consideration of an objection that is ultimately allowed.     

The proposed amendments to section 88 of the ITA and section 36 of the VAT Act significantly limit taxpayers’ constitutional rights.This is demonstrated by the deprivation of the taxpayer’s right to the audi alteram partem principle.This principle compels the Commissioner to ‘hear’ the taxpayer’s side before the obligation to pay a disputed assessment arises.In Singh vs Commissioner, South African Revenue Service 2003 4 SA 520 (SCA) 65 SATC 203 at [35] 218, the court held that a disputed assessment will become final only once the Commissioner has considered and decided upon the taxpayer’s objection thereto. This principle was entrenched in the provisions of the ITA which rendered Singh’s case applicable to disputed assessments raised under the ITA.

The new wording will have the effect that the assessment becomes enforceable even before the taxpayer is afforded an opportunity to dispute its correctness.The formal objection is the procedural right granted to a taxpayer to be heard before the payment obligation arises. It is this very right which the amendment seeks to eliminate.If one considers how many patently incorrect assessments are issued on a daily basis, it is most alarming to think that SARS is entitled to file for judgement,and apply for the provisional sequestration of a taxpayer,immediately pursuant to the issue of an assessment.

The substituted sections contain a list of factors which the Commissioner is required to take into account when making or revoking his decision to suspend the obligation to make payment.The question arises whether the listed factors are exhaustive, or whether the Commissioner may consider other, pertinent, factors.One would hope that the factors listed are not the only relevant factors and that the Commissioner is entitled to consider all circumstances which may, depending on the facts of each case, be important. For example, the conduct of the SARS officials involved in raising the assessment, the reasons for the assessment and the disallowance of the objection, are all factors which should be taken into account and yet they have not been cited as relevant factors. 

Another disconcerting feature of the new provisions is the irrelevance of some of the listed factors, such as "the amount of tax involved”.It is uncertain how much importance is attached to this factor and the exact consequence a large amount versus a small amount will have.The amount of tax constitutes a flexible notion which could weigh in both directions and it seems to be a neutral factor rather than a relevant consideration

In SARS’ defense, the purpose of the "pay now, argue later” principle is designed to protect the fiscus with the collection of taxes which are reasonably considered to be payable. However, different considerations should apply when it comes to penalties and additional tax, which are intended to be punitive in nature. It is wholly unfair that a taxpayer be compelled to pay penalties and additional taxes without due process. Unfortunately, the amendments fail to address this distinction.

The new sections 88 and 36 (of the ITA and VAT Act respectively) appear extreme and unjustified with little regard for taxpayers’ constitutional rights. The powers afforded to SARS by the amendments are draconian and see the most compliant taxpayer being treated with hostility.Notwithstanding the comments furnished to SARS on the Taxation Laws Second Amendment Bill (which addressed inter alia the issues discussed herein), the amendments are here to stay.

A word of advice,taxpayers should be aware of the new legislation and understand precisely what is required in requesting that payment be suspended.It is imperative that requests be lodged as soon as a disputed assessment arises, and that the appropriate submissions–in accordance with the listed factors–be submitted.Taxpayers must ensure that submissions are comprehensive and timeous as it may be the difference between paying a hefty sum upfront for a miscalculation occasioned by SARS,as opposed to suspending payment pending the outcome of the objection and appeal process.

Source: By Kerry Watkin (TaxTALK)




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