All South African businesses, whether micro or large enterprises, are acutely aware of the importance of a tax compliant status. A non-compliant status on the central supply database can render businesses ineligible to apply for tenders and cause irreparable financial harm when suppliers, or clients, are unwilling to do business.
Section 256(3) and (7) of the Tax Administration Act, 20 of 2011 (“TAA”) states that:
“3) The taxpayer’s tax compliance status may only be indicated as compliant if the taxpayer —
(a) is registered for tax as required in terms of a tax Act;
(b) does not have any outstanding tax debt -
(i) contemplated in section 167 or 204; or
(ii) that has been suspended under section 164; or
(iii) that may not be recovered for the period specified in section 164 (6); or
(iv) that does not exceed the amount referred to in section 169 (4) or any higher amount that
the Commissioner may determine by public notice; and
(c) does not have any outstanding return, unless an arrangement with SARS has been made for
the submission of the return.
7) A taxpayer’s tax compliance status will be indicated as non-compliant by SARS for the period commencing on the date that the taxpayer no longer complies with a requirement under subsection (3), or such later date as the Commissioner may prescribe, and ending on the date that the taxpayer remedies the non-compliance.”
The TAA, therefore, provides clear parameters regarding the ambit of the South African Revenue Service’s (“SARS”) authority. However, section 256(3) of the TAA makes reference to the word “may” which can be problematic, as it affords the relevant SARS officials a discretion that is not always exercised correctly.
In instances where a taxpayer disputes an assessment raised by SARS, the payment thereof can be suspended pending the finalisation of the dispute. Where a disputed tax debt is suspended, in terms of section 164 of the TAA, the disputed tax is deemed not to be an “outstanding tax debt”. The taxpayer would therefore be regarded as tax compliant until the taxpayer no longer complies with any of the requirements under subsection (3).
Recently, in cases where tax liability is disputed and the payment thereof has been suspended in terms of section 164 of the TAA, there has been an increase in the trend of SARS officials granting taxpayers “temporary” tax compliance which is valid for a period of usually one to three months and will thereafter lapse. However, it is paramount to note that nowhere in the TAA, or any of the South African Tax Acts, is reference made to the concept of “temporary” tax compliance. To put simply, all taxpayers should be granted a tax compliant status until such time as they fail to meet the criteria as set out in section 256(3) of the TAA. SARS is a creature of statute and therefore has no authority to issue taxpayers with tax compliance status other than in terms of the legislation, let alone provide a “temporary” tax compliance certification.
Although to some this problem may seem inconsequential, the predominant issue with “temporary” tax compliance is that once the compliant status lapses, it is not automatically reinstated. The onus then falls on the taxpayer to engage with SARS and request that a manual override be done to reinstate compliance. As soon as the taxpayer’s compliance status lapses, a letter of Final Demand is automatically issued and, unless the taxpayer gets SARS to formally withdraw the letter, SARS can commence collection steps, including an application for judgment, after the expiry of 10 business days.
Unfortunately, in most cases, the remedying of the non-compliant status and letter of Final Demand, require that the taxpayer appoint a registered tax practitioner or an attorney to deliver to SARS a letter of demand in terms of section 11(4) of the TAA. However, the section 11(4) demand letter, and possible litigation, comes at an expense to the taxpayer and the cost thereof can quickly accumulate if one is required monthly after the “temporary” compliance lapses.
The TAA states that a section 11(4) letter of demand must grant SARS a period of 10 business days to respond and remedy the taxpayer’s grievance before any Court application can be launched. However, that 10-day waiting period of non-compliance can result in the business of the taxpayer suffering serious financial damage. Essentially, the only options available to taxpayers, who are faced with this situation, are to either suffer financial loss as a result of the non-compliance or to incur legal expenditure to deliver a formal letter to SARS and, in some cases, even launch an urgent application to the High Court where urgent compliance is required.
The unfortunate reality is that until the Commissioner of SARS, and the SARSofficials irrationally granting “temporary” compliance, have been held personally liable for damages suffered as a result of their unlawful conduct, it is unlikely that we will see any real change. However, unless the Commissioner of SARS decides to respect the legislation and the rights of taxpayers, it is the Court that will, at great expense to the taxpayer, finally hold SARS accountable.
Deneska Potgieter
