Pay now and argue later

Mahomed Kamdar

Technical Advisor:SAIPA

The concept of `pay now, argue later’, is understandably, a source of anxiety among taxpayers and tax practitioners. It is recognized that the due date for the payment of tax under an assessment is normally before the due date for lodging an objection. Although the Income Tax Act and the Value-Added Tax Act do allow for the launching of objection or appeal against an assessment, the tabling of appeals and objections does not remove the obligation to pay tax. In tax specialist terminology the payment of the assessed tax is still exigible although an objection and an appeal may be instituted.

The concept of `pay now and argue later’ has been the subject of many landmark court cases and more recently, received the attention of the not-yet-legislated Tax Administration Bill as well. The question is what the latest development with regards to the issue of `pay now, argue later’. SAIPA members and taxpayers are keen to know what the latest developments are in order to better service the clients.

A small digression may not be inappropriate at this juncture. It is alleged that it is unconstitutional for the revenue authority to demand payment of a tax liability when an appeal or objection is pending.  More specifically, Section 88 of the income Tax Act reads as follows:

     Payment of tax pending objection and appeal

(1)     Unless the Commissioner otherwise directs in terms of subsection (4)-

(a)     the obligation to pay any tax chargeable under this Act; and

(b)     the right to receive and recover any tax chargeable under this Act, shall not be suspended by any objection or appeal or pending the decision of a court of law.

The equivalent of this Section of the Income Tax Act is the Section 40 (5) of the Value-Added Tax Act.

The latest[1] tax case law on this subject was delivered on 22 June 2011 and argues that, although the aforementioned sections of the Income Tax act and it mirror image in the valued-added tax, constitute a limitation of the rights afforded in terms of Section 34 of the Bill of Rights, the `prospect of a successful attack on the constitutionality of Section 88 of the Income Tax Act and {presumably Section 40 (5) of the Value-Added Tax} to the extent that it bears on the obligation to pay now and argue later is remote’. In this same case, the Judge argued that the `Recovery of Tax’ Sections Income Tax Act are enforcement mechanism and must be differentiated from the means that determine liability and therefore, SARS is in a position to recover an amount which it certifies as due and payable despite the fact that an objection has been lodged or an appeal may be pending.

The soon-to-be legislated Draft Tax Administration Bill takes cognizance of this tax case law and provides further clarity in this regard.  The Bill is unambiguously emphatic that the obligation to pay tax, which arises upon the issue of an assessment, is not automatically suspended by an objection or appeal. The payment obligation can only be suspended by SARS upon request by the taxpayer.

Chapter 10 of the Draft Bill makes the following recommendation:

(a) a suspension request may be made before an objection is lodged. However, such suspension will automatically fall away if no objection is lodged. If the objection is lodged but is based on frivolous or vexatious grounds, the suspension of the obligation to pay may be revoked.

(b) The discretion to suspend payment or to revoke it is based on specific criteria specified in the TAB, to enable a taxpayer to understand what criteria must be met to qualify for a suspension.

(c) A new obligation is placed on the senior SARS official to periodically review the suspension (on a risk basis) during the dispute, and to revoke the suspension in the case of dissipation of asset risks or delaying tactics employed by the taxpayer.

(d) A taxpayer who pays and whose objection is upheld, is now entitled to interest from the date of payment of the disputed amount to the date such amount is refunded. This applies across all taxes.