Albert Einstein once said: "The hardest thing in the world to understand is the income tax." This is certainly true when trying to understand SARS’ application of the legislation dealing with penalties, and deferred payment arrangements (typically requests for suspension of payment pending the outcome of an objection or appeal).
In its Annual Performance Plan for 2021/22, SARS casually states that it intends to “make it easy” for taxpayers to become and remain tax compliant.
SARS continues that it aims to provide “an easily accessible, professional and efficient service” and that it “will ensure that taxpayers and traders are provided with seamless services from registration”
Unfortunately, some obligations and remedies are not so clear, accessible, or seamless as one would hope them to be.
Tax compliance can be defined as the degree to which taxpayers fulfill their tax obligations, as and when required by law. One of the obligations taxpayers may have difficulty adhering to would be the timeous payment of their outstanding debt, especially in instances where there is a significant amount of debt involved. SARS has therefore put certain practices in place and made remedies available to taxpayers to manage the payment of outstanding debt before it becomes overdue.
SARS’ debt collection processes include the issuing of Letters of Final Demand to make taxpayers aware of their outstanding debt. Remedies available to taxpayers include applications for deferments to SARS’ Debt Management Offices as well as the submission of requests for Suspension of Payment.
In its Annual Performance Plan SARS states that the aim of its enforcement activities is to promote fairness and deter non-compliance. Whilst indicating that it strives to build the necessary capabilities to detect and investigate non-compliance, SARS also intends to provide taxpayers with reasonable time and clear guidance on how to respond.
Although some guidance is provided regarding the remedies available to taxpayers, in some instances reasonable time and “clear” guidance appear to be illusive goals. Many tax practitioners and taxpayers struggle to achieve satisfactory outcomes in this regard.
For example, a taxpayer who is aggrieved by an assessment issued by SARS has the right to object thereto. The SARS dispute resolution rules state that the first step in disputing an incorrect assessment is to submit a request for reasons. This has to be done within 30 business days from the date of the assessment.
The Act allows SARS 30 business days to issue the response to the request for reasons. In practice, SARS often misses this deadline. Be that as it may, once the reasons for the disputed assessment have been issued by SARS, the taxpayer has 30 business days within which to lodge an objection to the assessment.
In practice, this is also the first opportunity that the taxpayer has to submit a request for the suspension of payment, pending the outcome of the objection and any subsequent appeal.
In the meantime, the due date for the payment of the disputed assessment would have come and gone, and SARS typically issues a Letter of Final Demand. The Act provides that if a taxpayer fails to respond to the Letter of Final Demand within 10 days from the date of issue thereof, SARS may legally commence with collecting the amount due. This routinely includes issuing a Third-Party Appointment letter to the taxpayer’s bank, thus enabling SARS to withdraw the disputed amount from the taxpayer’s bank account.
So, while the aggrieved taxpayer is still well within the legally prescribed period for lodging an objection to the disputed assessment, SARS has already taken the money out of its bank account.
This application of the so-called “Pay Now, Argue Later” principle has left numerous taxpayers impoverished and caused severe hardship to them, particularly where their businesses are already battling to overcome the devastating effects of the Covid-19 lockdowns of the last 2 years.
In some cases, taxpayers require Tax Clearance Certificates for business tender purposes. The current SARS system forces them to settle the disputed assessments, pending or even after the submission of a valid objection, purely to obtain the essential Tax Clearance Certificates. Once paid, it often takes many months to obtain a corrected assessment and the tax refund.
Tax practitioners are finding it impossible to submit a request for Suspension of Payment on e-filing without simultaneously submitting the notice of objection. The e-filing system does not cater for requests for suspension of payment to be submitted separately.
Requests for suspension of payment submitted to SARS via other channels, e.g., by way of e-mails to the official SARS Tax Practitioners mailboxes are in practice flatly ignored.
This mismatch of the objection and suspension of payment processes needs urgent attention.
Does SARS really allow reasonable time and clear guidance for taxpayers on how to manage their outstanding debts? Is SARS’ aim of enforcement activities promoting fairness? Based on many taxpayers’ experience, the answer to these questions must be No.
Arguably, demanding payment of the debt within ten days of issuing a Letter of Final Demand while the taxpayer is in the process of formally lodging an objection or awaiting the outcomes thereof, would appear to be unfair.
It can also be argued that SARS does not take information at its disposal into account. As mentioned above, Letters of Final Demand are still issued while taxpayers await the outcomes of formally submitted Objections and Suspension of Payment letters. Additionally, SARS is then taking collection steps when legally barred from doing so as decisions have not been taken on these requests yet.
Considering the above, SARS also states that it strives to expand the use of data analytics and artificial intelligence to improve the integrity of its records, risk management and to derive critical inputs and improve outcomes. However, the scenarios briefly described above do not in fact suggest that SARS is taking adequate measures to ensure efficiency and fairness in its actions.
The institutional integrity and capabilities of SARS therefore also remains questionable.
Perhaps Albert Einstein was in fact correct………….
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