"Pay now, argue later": The high court reaffirms the limits of SARS' discretionary powers
"Pay now, argue later": The high court reaffirms the limits of SARS' discretionary powers
By Shirlynn Smith, Senior Manager and David Warneke, Partner
On 2 February 2026, the Gauteng Division of the High Court (“the Court”) delivered judgment in Ferreria v Commissioner for the South African Revenue Service (Case No. 2024-067035) (“Ferreria”).
The case concerns the review of the South African Revenue Service’s (“SARS”) refusal to suspend payment of disputed tax under section 164 of the Tax Administration Act 28 of 2011 (“TAA”), read with a reconsideration request under section 9 of the TAA.
The judgment in Ferreria is significant as it reaffirms the limits of SARS’ discretion when applying the “pay now, argue later” principle and reinforces that such discretion must be exercised rationally, procedurally fairly and with proper regard to all relevant facts.
The statutory framework
Section 164(1) of the TAA embodies the “pay now, argue later” principle, in terms of which the obligation to pay tax and SARS’ right to receive and recover tax are not suspended by an objection or appeal.
While this principle is well-established, it is subject to a statutory discretion conferred on SARS under section 164 of the TAA. In terms of section 164(2) of the TAA, a taxpayer may request a suspension of payment. Section 164(3) of the TAA further provides that a senior SARS official may grant such suspension, having regard to relevant factors, which include:
The discretion conferred upon SARS by section 164(3) is not unlimited. While SARS is entrusted with weighing the relevant factors, that discretion must be exercised on a proper factual foundation, with due regard to the evidence, and in a manner that is rational and procedurally fair.
Facts of the case
The dispute arose from additional income tax assessments issued by SARS against the taxpayer for the 2009 to 2021 years of assessment, amounting to approximately R531 million. The taxpayer disputed the assessments and accordingly requested a suspension of payment in terms of section 164 of the TAA, pending the outcome of the dispute.
In support of the request, the taxpayer initially tendered various forms of security to SARS. This request was denied by SARS on the grounds that the value of the assets tendered as security was inadequate, and thus the tax collection of the disputed tax (in the event that the dispute was decided in SARS’ favour) would be in jeopardy.
Following SARS’ refusal, the taxpayer tendered additional security in the form of an 80% shareholding valued at over R1 billion, and requested that SARS reconsider its decision not to suspend payment of the disputed tax, in terms of section 9(1) of the TAA – the essence of which is that at the discretion of a SARS official, certain decisions made by SARS officials or notices issued by SARS may be withdrawn or amended.
Again, SARS denied this request on the basis that the collection of the disputed tax would be in jeopardy (in the event that the dispute was decided in SARS’ favour) as the additional security was still insufficient.
The taxpayer launched an application under PAJA for the review of SARS’ decision to deny the suspension of payment of the disputed tax. The application was premised on the value of the additional security tendered by the taxpayer being far in excess of the disputed tax.
The taxpayer contended that SARS’ refusal to suspend payment was reviewable under PAJA on the basis that:
SARS opposed the application, arguing, inter alia, that:
Issue before the court
The central issue before the court was whether SARS properly exercised its discretion under section 164 of the TAA in refusing to suspend payment of the disputed tax, in circumstances where substantial security had been tendered. More specifically, the court was required to determine whether SARS’ decision was rational, based on relevant considerations, and procedurally fair as required under PAJA.
The court’s decision
The court affirmed the principle established in Metcash Trading Ltd v Commissioner, South African Revenue Service and Another 2001 (1) SA 1109 (CC), namely that the “pay now, argue later” principle is constitutionally valid. The Constitutional Court (“CC”) recognised that the principle is widely accepted in the tax collection framework and constitutionally permissible within an open and democratic society, including through the availability of mechanisms to challenge SARS’ decisions and seek appropriate relief.
The court emphasised that the exercise of SARS’ discretion under section 164 of the TAA constitutes administrative action and is therefore subject to review under section 6 of PAJA.
The constitutional validity of the “pay now, argue later” principle therefore rests, in part, on the proper exercise of this discretion.
On the facts, the court accepted that the value of the additional security tendered by the taxpayer was in excess of R1 billion. Therefore, the court concluded that this would, in fact, be adequate security for the disputed tax.
The court further found that SARS had failed to place the additional security before the IDC. Relying on the principle established in Room Hire Company Proprietary Limited v Jeppe Street Mansions Proprietary Limited [1949] (3) SA 1155 (T), the court held that a bare denial by SARS was insufficient, and that it was incumbent upon SARS to place before the court facts substantiating its position, which it failed to do.
In addressing the lawfulness of SARS’ decision, the court found that:
• SARS disregarded the value of the additional security, resulting in a failure to consider relevant factors;
• The decision lacked a rational connection to the purpose of section 164 of the TAA;
• The additional security was not properly considered by the IDC, rendering the process procedurally unfair; and
• The taxpayer would suffer significant prejudice if required to liquidate assets to satisfy the disputed tax.
Accordingly, the court concluded that SARS’ decision contravened section 6 of PAJA and fell to be reviewed and set aside.
Substitution of SARS’ decision as the appropriate remedy
The court then considered whether it was appropriate to substitute its own decision in place of that of SARS, noting that such relief is reserved for exceptional circumstances.
Referring to Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Ltd 2015 (5) SA 245 (CC), the court reiterated that, substitution is appropriate where:
• The court is in as good a position, as the administrator, to make the decision;
• The outcome is a foregone conclusion; and
• Substitution would be just and equitable in the circumstances.
Having regard to the facts before it, the court found that it was indeed in as good a position as SARS to make the decision, that the outcome was a foregone conclusion, and that substitution would be just and equitable.
Accordingly, the court exercised its powers under PAJA to substitute SARS’ decision with its own and ordered that payment of the disputed tax be suspended, pending the outcome of the underlying tax dispute.
Conclusion
The Ferreria judgment provides a clear reminder that, while the “pay now, argue later” principle remains a powerful revenue collection tool, its application is constrained by the requirements of administrative law.
For SARS, the decision underscores the need for disciplined, evidence-based decision-making that properly considers all relevant factors and adheres to fair process.
For taxpayers, the judgment reinforces that section 164 of the TAA is not merely a procedural hurdle, but a mechanism that can be meaningfully engaged, and where necessary, challenged.
Ultimately, the application of the “pay now, argue later” principle is inextricably linked to the lawful, rational and procedurally fair exercise of the discretion conferred upon SARS if the taxpayer applies for suspension of payment in terms of section 164(3).
On 2 February 2026, the Gauteng Division of the High Court (“the Court”) delivered judgment in Ferreria v Commissioner for the South African Revenue Service (Case No. 2024-067035) (“Ferreria”).
The case concerns the review of the South African Revenue Service’s (“SARS”) refusal to suspend payment of disputed tax under section 164 of the Tax Administration Act 28 of 2011 (“TAA”), read with a reconsideration request under section 9 of the TAA.
The judgment in Ferreria is significant as it reaffirms the limits of SARS’ discretion when applying the “pay now, argue later” principle and reinforces that such discretion must be exercised rationally, procedurally fairly and with proper regard to all relevant facts.
The statutory framework
Section 164(1) of the TAA embodies the “pay now, argue later” principle, in terms of which the obligation to pay tax and SARS’ right to receive and recover tax are not suspended by an objection or appeal.
While this principle is well-established, it is subject to a statutory discretion conferred on SARS under section 164 of the TAA. In terms of section 164(2) of the TAA, a taxpayer may request a suspension of payment. Section 164(3) of the TAA further provides that a senior SARS official may grant such suspension, having regard to relevant factors, which include:
- Whether recovery of the disputed tax would be in jeopardy or there is a risk of dissipation of assets;
- The taxpayer’s compliance history;
- Whether fraud is prima facie involved;
- Whether payment would result in irreparable hardship to the taxpayer not justified by prejudice to SARS or the fiscus; and
- Whether adequate security has been provided and whether accepting such security is in the interest of SARS or the fiscus.
The discretion conferred upon SARS by section 164(3) is not unlimited. While SARS is entrusted with weighing the relevant factors, that discretion must be exercised on a proper factual foundation, with due regard to the evidence, and in a manner that is rational and procedurally fair.
Facts of the case
The dispute arose from additional income tax assessments issued by SARS against the taxpayer for the 2009 to 2021 years of assessment, amounting to approximately R531 million. The taxpayer disputed the assessments and accordingly requested a suspension of payment in terms of section 164 of the TAA, pending the outcome of the dispute.
In support of the request, the taxpayer initially tendered various forms of security to SARS. This request was denied by SARS on the grounds that the value of the assets tendered as security was inadequate, and thus the tax collection of the disputed tax (in the event that the dispute was decided in SARS’ favour) would be in jeopardy.
Following SARS’ refusal, the taxpayer tendered additional security in the form of an 80% shareholding valued at over R1 billion, and requested that SARS reconsider its decision not to suspend payment of the disputed tax, in terms of section 9(1) of the TAA – the essence of which is that at the discretion of a SARS official, certain decisions made by SARS officials or notices issued by SARS may be withdrawn or amended.
Again, SARS denied this request on the basis that the collection of the disputed tax would be in jeopardy (in the event that the dispute was decided in SARS’ favour) as the additional security was still insufficient.
The taxpayer launched an application under PAJA for the review of SARS’ decision to deny the suspension of payment of the disputed tax. The application was premised on the value of the additional security tendered by the taxpayer being far in excess of the disputed tax.
The taxpayer contended that SARS’ refusal to suspend payment was reviewable under PAJA on the basis that:
- SARS failed to take into account relevant considerations, including the value of the additional security tendered, which exceeded the disputed tax;
- There was no rational connection between SARS’ decision and the purpose for which the power was exercised;
- The decision was so unreasonable that no reasonable decision-maker could have reached it; and
- The taxpayer had been subjected to a procedurally unfair process.
SARS opposed the application, arguing, inter alia, that:
- The taxpayer did not challenge the validity of the “pay now, argue later” principle, but only the application of this principle;
- The taxpayer had not adequately demonstrated financial prejudice;
- The taxpayer was not tax compliant in respect of other affairs;
- There were concerns regarding alleged fraudulent conduct giving rise to the additional assessments; and
- The additional security tendered was insufficient, and the recovery of the tax remained at risk.
Issue before the court
The central issue before the court was whether SARS properly exercised its discretion under section 164 of the TAA in refusing to suspend payment of the disputed tax, in circumstances where substantial security had been tendered. More specifically, the court was required to determine whether SARS’ decision was rational, based on relevant considerations, and procedurally fair as required under PAJA.
The court’s decision
The court affirmed the principle established in Metcash Trading Ltd v Commissioner, South African Revenue Service and Another 2001 (1) SA 1109 (CC), namely that the “pay now, argue later” principle is constitutionally valid. The Constitutional Court (“CC”) recognised that the principle is widely accepted in the tax collection framework and constitutionally permissible within an open and democratic society, including through the availability of mechanisms to challenge SARS’ decisions and seek appropriate relief.
The court emphasised that the exercise of SARS’ discretion under section 164 of the TAA constitutes administrative action and is therefore subject to review under section 6 of PAJA.
The constitutional validity of the “pay now, argue later” principle therefore rests, in part, on the proper exercise of this discretion.
On the facts, the court accepted that the value of the additional security tendered by the taxpayer was in excess of R1 billion. Therefore, the court concluded that this would, in fact, be adequate security for the disputed tax.
The court further found that SARS had failed to place the additional security before the IDC. Relying on the principle established in Room Hire Company Proprietary Limited v Jeppe Street Mansions Proprietary Limited [1949] (3) SA 1155 (T), the court held that a bare denial by SARS was insufficient, and that it was incumbent upon SARS to place before the court facts substantiating its position, which it failed to do.
In addressing the lawfulness of SARS’ decision, the court found that:
• SARS disregarded the value of the additional security, resulting in a failure to consider relevant factors;
• The decision lacked a rational connection to the purpose of section 164 of the TAA;
• The additional security was not properly considered by the IDC, rendering the process procedurally unfair; and
• The taxpayer would suffer significant prejudice if required to liquidate assets to satisfy the disputed tax.
Accordingly, the court concluded that SARS’ decision contravened section 6 of PAJA and fell to be reviewed and set aside.
Substitution of SARS’ decision as the appropriate remedy
The court then considered whether it was appropriate to substitute its own decision in place of that of SARS, noting that such relief is reserved for exceptional circumstances.
Referring to Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Ltd 2015 (5) SA 245 (CC), the court reiterated that, substitution is appropriate where:
• The court is in as good a position, as the administrator, to make the decision;
• The outcome is a foregone conclusion; and
• Substitution would be just and equitable in the circumstances.
Having regard to the facts before it, the court found that it was indeed in as good a position as SARS to make the decision, that the outcome was a foregone conclusion, and that substitution would be just and equitable.
Accordingly, the court exercised its powers under PAJA to substitute SARS’ decision with its own and ordered that payment of the disputed tax be suspended, pending the outcome of the underlying tax dispute.
Conclusion
The Ferreria judgment provides a clear reminder that, while the “pay now, argue later” principle remains a powerful revenue collection tool, its application is constrained by the requirements of administrative law.
For SARS, the decision underscores the need for disciplined, evidence-based decision-making that properly considers all relevant factors and adheres to fair process.
For taxpayers, the judgment reinforces that section 164 of the TAA is not merely a procedural hurdle, but a mechanism that can be meaningfully engaged, and where necessary, challenged.
Ultimately, the application of the “pay now, argue later” principle is inextricably linked to the lawful, rational and procedurally fair exercise of the discretion conferred upon SARS if the taxpayer applies for suspension of payment in terms of section 164(3).