The South African Revenue Service (“SARS”) is afforded wide powers in terms of the Customs and Excise Act 91 of 1964 as amended (“the Act”). These powers are often draconian and have serious financial consequences against those they are applied against. One such power is provided for in section 114, read with section 77G of the Act.

Section 114(1)(a)(i) of the Act provides that “Any amount of any duty, interest, penalty or forfeiture incurred under this Act and which is payable in terms of this Act, shall, when it becomes due or is payable, be a debt due to the State by the person concerned and shall be recoverable by the Commissioner in the manner hereinafter provided.”

(our emphasis)

This means that once SARS issues a letter of demand (“Demand”) against any taxpayer, that taxpayer is generally obliged to make payment, even though this tax liability may currently be in dispute by the taxpayer. This is referred to colloquially as the “pay-now-argue-later” principle.

Section 77G of the Act on the other hand provides that “Notwithstanding anything to the contrary contained in this Act, the obligation to pay to the Commissioner and right of the Commissioner to receive and recover any amount demanded in terms of any provision of this Act, shall not, unless the Commissioner so directs, be suspended pending finalisation of any procedure contemplated in this Chapter or pending a decision by court”.

In terms of section 77G of the Act, read with rule 77H.03 and section 164 of the Tax Administration Act 28 of 2011 (“the TAA”), the Commissioner has the power to suspend such a debt. The Commissioner can also suspend debt in terms of section 47 of the Act. The suspension of debt by the Commissioner in terms of the Act and the TAA involves different requirements and follows different processes. One of the key differences is that section 164(6) of the TAA provides that no collection steps can be taken while the suspension request is being considered, unless SARS has a reasonable belief that there is a risk of dissipation of assets by the person concerned. No such provision exists in the Act.

In the context of Customs matters, the TAA bears reference where the debt involves a Value-Added Tax (“VAT”) element, making the TAA relevant. The Act and the TAA are both administered by the Commissioner, and the Commissioner is therefore required and/or urged to act in a consistent manner when applying both pieces of legislation.

The Commissioner has the discretion to suspend a debt to ensure that the taxpayer’s constitutional rights are not infringed by the Commissioner’s power to invoke the “pay-now-argue-later” principle. When exercising that discretion, the Commissioner must act in a way that is reasonable, just, rational and administratively fair. This is in line with the requirements laid down in sections 33 and 195 of the Constitution of the Republic of South Africa, 1996 (“the Constitution”).

Section 33 of the Constitution provides that everyone has the right to administrative action that is lawful, reasonable and procedurally fair. Section 195(1) of the Constitution, on the other hand, provides that public administration must be governed by the democratic values and principles enshrined in the Constitution and sets out the applicable principles, including those of fairness, equitability and accountability.

Based on recent interactions with SARS in relation to suspension of payment applications, SARS officials have failed to act administratively fair in that SARS is failing to act in accordance with sections 33 and 195 of the Constitution. By way of an example, SARS has refused to hear appeals on the merits of the matter, because the appellant has elected not to be dealt with in terms of section 91 of the Act. SARS then communicates to the appellant that it is upholding the decision contained in the Demand.

SARS is also increasingly refusing to consider suspension of payment applications, stating that such applications cannot be considered without the applicant either paying the amount demanded or securing the debt by, e.g. putting up a guarantee. Interestingly, the requirements in terms of rule 77H.03(5) read with rule 77H.03(7)(f) of the Act provide no such prerequisite for a suspension application to be considered.

Furthermore, SARS is taking the stance that suspensions can only be in place until the internal administrative appeal (“IAA”) outcome, which is in stark contrast with section 77G of the Act, which provides that suspension can be in place “pending a decision by court”.

A guarantee or security is not, or should not be, the definitive factor in deciding whether suspension of payment is heard. SARS, in taking this stance, makes the other grounds provided for in the Act irrelevant, which could never have been the intention of the legislature. This is ever so important where the debt has been incorrectly raised because of the failure of SARS officials to act in accordance with the Act, PAJA and the Constitution.

Taxpayers cannot be expected to put up guarantees amounting to millions of rands, where proper processes have not been followed and where the Act does not expressly require this. Rule 77H.03(5) to the Act sets out the documents which must support an application for suspension (a guarantee is not one of the documents stated) whereas Rule 77H.03(7) to the Act sets out the factors which must be considered when deciding on a suspension application (these factors are required to be considered collectively and no one factor should be decisive on the decision made). 

The position taken by SARS in relation to guarantees is an injustice to taxpayers and is resulting in companies being unnecessarily put out of business. This adds to unemployment and, indirectly, causes a loss and/or a burden to the fiscus. An urgent intervention is required in this regard.

If you are faced with a similar issue, Shepstone & Wylie is uniquely positioned to assist.