Part 1: Email requiring payment
When SARS issues an income tax assessment, the “due date” is frequently the first day of the month, in the month following next. In this example, SARS issued an additional income tax assessment in March 2017, with a “due date” of 1 May 2017, and a “second date” of 31 May 2017. Underneath the “assessment summary information” block on the notice of assessment, the following fairly standard wording appeared: “Thank you for submitting your income tax return for the [x] year of assessment. Your assessment has been concluded and reflects an amount payable by you of [Rx]. Payment should be made by 2017-05-31 after which interest will accrue on this assessment as from 2017-05-01.”
Then, a few days after the assessment was issued in March, and long before any potential due date, a SARS collections official sent through a statement of account, with a request that payment be made in full. This email also purported to require a response within three business days, although there is no basis for this requirement – there are no timelines or other provisions for this type of communication, where there is no requested information or documentation.
This initial request for payment was dealt with by means of an email pointing out that the assessment had only just been issued, with a due date only in May; that the amount was accordingly not yet due and payable, and that the taxpayer would settle the tax as and when this falls due.
Part 2: “Final demand” letter
This was not the end of the story. On 1 May 2017, SARS issued a “final demand” letter. The final demand letter is necessary because SARS is not allowed to appoint a third party as agent to satisfy tax debts (for example appointing your bank as your tax agent, to pay SARS directly) without having issued a final demand at least 10 business days in advance.
SARS’ powers to obtain a civil judgment are also constrained by having to give the taxpayer at least 10 business days’ notice. In the circumstances, SARS typically issues an “all purpose” final demand letter, warning a taxpayer that SARS may take either of these two actions if the taxpayer fails to make payment.
The problem with the issue of the final demand letter on 1 May 2017 relates to the definition of “outstanding tax debt” in the Tax Administration Act, which is “tax debt not paid by the day referred to in section 162”.
Section 162, in turn, states that “tax must be paid by the day and at the place notified by SARS…” In this case, SARS had patently directed that payment should be made by 31 May 2017. This meant the tax was not yet an “outstanding tax debt”, regardless of the “due date” of 1 May 2017 on the notice of assessment. Accordingly, SARS was not authorised by the Tax Administration Act to take any further recovery processes.
This legal position was brought to SARS’ attention, and the relevant SARS official was requested to intervene as appropriate, and ensure that no further actions take place in the interim period before the “second date”, which SARS had specified as the date for making payment.
Throughout the Tax Administration Act, there are exceptions to the normal processes and standards that protect taxpayers, for situations where the collection of tax is in jeopardy. These apply equally to the recovery proceedings, where SARS can in a jeopardy situation require a taxpayer to pay immediately upon assessment. However, this must be done by a senior SARS official, and the taxpayer notified as such.
SARS’ standard processes and automated notices are not always fully aligned with the actual tax legislation. Specifically as regards demands for taxes, be careful that SARS does not demand these before they are actually due and payable, placing undue strain on your business’s cash flows.