Outstanding debt with SARS? Beware.

We have recently noted an increase in the number of cases where SARS have accessed monies from taxpayers bank accounts, without the taxpayers consent, to settle purported ‘outstanding tax debts’. In this regard, it is important to note that SARS do indeed have the power access monies from your bank account, without your consent, but are required by law to follow the necessary steps prescribed by the TAA before doing so – if you default on paying your tax debt to SARS and do not follow the correct procedures, your banked monies or even your salary may not be safe! SARS will use your ID number to access to data in relation to every bank account registered in your personal name.

Section 179 of the TAA empowers SARS do this by way of issuing a collection notice called a AA88 third party notice. This notice essentially instructs a third party to withhold and pay over ‘any amounts due to SARS in terms of the TAA’. The third party can be an employer, or any other person who has ‘the management, custody or control of any income, monies or property of the taxpayer’ (i.e. a bank). The odds of SARS using this debt collection method (AA88 notice) increases as the end of the tax year approaches and SARS scramble to meet their steep revenue collection targets. It is important for taxpayers to understand that, due to recent amendments to the TAA, SARS can do this without any judicial oversight.

Most importantly, before SARS can recover any tax debt, the taxpayer must have received an assessment from SARS (i.e. there can be no debt without an assessment, whether it be an original, additional, reduced, estimated or jeopardy assessment). SARS can only recover an outstanding amount in terms of an assessment. Accordingly, assessments need to detail when an amount is in fact due and payable as well as the quantum of tax due and payable. A taxpayer is liable to pay the amount of tax to SARS by the due date of the assessment as detailed on the relevant assessment.

If a taxpayer disagrees with an assessment issued by SARS, they have the right to lodge an objection in dispute of the assessment.  However, SARS is still legally obligated to collect any tax debt due to it, regardless of whether the taxpayer has disputed an assessment or is in the process of disputing an assessment that gave rise to a tax debt.

In this regard, an important factor to consider here is the “pay-now-argue-later” principle, which applies to all tax debts. In terms of this principle, the obligation to pay tax is not automatically suspended by an objection or appeal lodged by the taxpayer or a taxpayer’s representative. Accordingly, it is important that, where a taxpayer receives an assessment which taxpayer disagrees with and only intends to make payment in terms of the assessment pending the outcome of an objection or appeal, the taxpayer must do the following to prevent SARS from instituting collection proceedings (preferably before the tax becomes due and payable):

1. submit a “Request for Suspension of Payment” via eFiling; and
2. lodge (or inform SARS of their ‘intention’ to lodge) an Objection in dispute of the assessment.

A suspension of payment request essentially protects a taxpayer from all SARS collection procedures from the date the request is received by SARS through to 10 business days after SARS issues its decision to the taxpayer to either grant or decline the request. If SARS approves the request for suspension of payment, it may not commence any collection proceedings for the tax debt in dispute pending the outcome of the objection or appeal. At worst, this buys the taxpayer some much needed time to arrange the funds to settle the tax debt if SARS deny the suspension of payment request.

Only a senior SARS official can decide to suspend payment in terms of section 164 of the TAA, who must take the following factors into account when deciding to grant or decline the request:

• the risk of recovery will be put in jeopardy or there will be a risk of dissipation of assets;
• the compliance history of the taxpayer;
• whether fraud is involved in the origin of the dispute;
• whether payment will result in irreparable financial hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; and
• whether the taxpayer is able to provide adequate security for the payment of the amount involved.

If the senior SARS official declines the taxpayers request for SARS to suspend payment due to SARS in terms of an assessment, pending the outcome of an objection or appeal, the taxpayer has the option to apply to SARS for a payment plan (i.e. apply to pay off the tax debt in affordable monthly installments).

Once the objection or appeal has run its course and finality has been reached, either by the issue of a reduced assessment, or the objection or appeal being declined, the resulting assessed tax becomes due and payable. The due date for payment will be reflected on the revised assessment.  If the taxpayer disregards the stipulated payment date, then SARS may commence collection proceedings, which includes collecting the tax debt from a third party.

SARS must follow due process when issuing a AA88 notice to a third party:

• a senior SARS official must authorise the issue of the notice to a third party. SARS may only issue the notice after 10 business days of delivery to the taxpayer of final demand for payment;
• the final demand must set out the following:
  • recovery steps that SARS may take if the tax debt is not paid;
  • available debt relief mechanisms contained in the TAA;
  • if the taxpayer is a natural person he or she may within 5 business days of receiving the final demand, apply to SARS for a reduction of the amount to be paid to SARS based on the living expenses of the taxpayer and his or her family; and
  • if the taxpayer is not a natural person it may within 5 business days of receiving the final demand, apply to SARS for reduction of the amount to be paid to SARS based on serious financial hardship; and
  • if requested, SARS must extend the period over which the amount must be paid to SARS, to allow the taxpayer to pay basic living expenses;
  • SARS may issue the notice to a third party without issuing a final demand only if a senior SARS official is satisfied that to do so would prejudice the collection of the tax debt.

In the event that the taxpayer cannot afford to settle the tax debt owing to SARS, another relief mechanism afforded by the TAA is a compromise agreement, whereby SARS may write off a part of the tax debt.

If a taxpayer has successfully applied for suspension of payment or applied for an installment payment plan or reached a compromise, and SARS proceed with instructing a third party to withhold and pay over funds, these proceedings on the part of SARS will be regarded to be illegal and in contravention of the TAA. The taxpayer will have the following recourse against SARS in this instance:

1. to lodge an official complaint to SARS via the Complaint Management Office (CMO). This can be done on the taxpayers eFiling profile;
2. if the CMO fails to address the matter in a satisfactory manner, the taxpayer could take the matter to the office of the Tax Ombud (who is independent from SARS);
3. as a last resort, the taxpayer could institute legal action to remedy the situation.

It is becoming increasingly important that taxpayers understand their rights in terms of the steps SARS must follow to recover any tax debt as well as their obligations with regards to submitting objections and appeals timeously.

We further advise that taxpayers should seek the advice of a qualified tax professional immediately with matters of this nature. In this regard, Mazars Port Elizabeth has a number of dispute specialists that will deal with these matters timeously and decisively. Please email any queries you may have in this regard to PLZ.TaxConsulting@mazars.co.za.