Taxpayer’s right to be notified is a matter of administrative justice
JOHANNESBURG – The SA Revenue Service (SARS) can collect outstanding tax debts using several methods, but each has specific procedures that must be followed to ensure due process, especially when a third party is involved.
A recent High Court judgment confirmed this, and in doing so, also confirmed the administrative justice principle of providing sufficient notice to the taxpayer prior to appointing an agent for the collecting of outstanding debt.
The high cost of litigation often deters taxpayers who want to take action against SARS to recover their funds, but, courts are less likely to overlook legal process and rights of the taxpayer in situations where proper processes are not followed.
In this judgment, the High Court ordered the Commissioner to repay the monies to the taxpayer together, with interest as well as the costs of litigation.
This case is a perfect example where rights of the taxpayer prevailed over the powers conferred upon the Commissioner.
What the Tax Administration Act (TAA) says Section 179 of the TAA allows the SARS Commissioner to appoint a third party to hold money on behalf of a taxpayer, and to pay such monies over to SARS in respect of outstanding tax debt. This third party is often the bank with which the taxpayer banks.
However, S179 also requires that the Commissioner takes certain steps before appointing this third party as a collection agent, including notifying a taxpayer that they have an outstanding tax debt, and that further steps will be taken should the tax debt remain outstanding.
This protocol is aligned to the Promotion of Administrative Justice Act, which requires that a public entity notify any person of their intention to take a decision that has an adverse material external effect on the person’s rights, such as the decision to appoint a third party as a collecting agent for outstanding tax debt. A key requirement is that the debt must be outstanding.
Importantly, any notice served to a taxpayer by the Commissioner before expiry of the aforementioned date does not qualify as a ‘notice’ in terms of S179 of the TAA. The Commissioner therefore cannot invoke this section’s provisions against any third party who holds monies or assets on behalf of the taxpayer to collect on a tax debt.
The case at hand: SIP Project Managers vs SARS Commissioner
A recent High Court ruling in the case of SIP Project Managers vs SARS Commissioner dealt with this issue in detail. In this case, an official in SARS’ debt management team issued a letter notifying the taxpayer that there was debt on their account, which fell due at the end of November. The letter was issued before the expiry date for payment specified in the assessment notice. The Counsel representing SARS in this matter relied on this notice as evidence that the taxpayer had been notified that SARS would be appointing the bank as an agent. The High Court had to decide whether that notice (issued prior to the due date) constituted notice in terms of S179 of the TAA, and whether such notice was sufficient to entitle SARS to appoint the bank as an agent to collect on the deemed outstanding tax debt.
Ultimately, the Court ruled against the Commissioner, stating –
“…the respondent may only use the method in sec 179 to obtain payment through a third party if it complies with the requirements of the section. The wording of section 179(5) is unambiguous and clear – the notice to a third party “may only be issued after delivery of a final demand for payment which must be delivered at least 10 business days before the issue of the notice…” This is a peremptory requirement before the step can be taken to issue a third party notice for the recovery of an outstanding tax debt.”
The High Court acknowledged that the debt remained outstanding and the process would have to be initiated from the beginning if an order was granted that SARS should repay the monies collected from the bank account of the taxpayer. However, it also highlighted the purpose of S179 (5), which required notification was introduced to limit the powers of SARS in recovering outstanding tax debts. To ignore the provisions of S179 (5) for the sake of process would be condoning an unlawful process and render the provision superfluous.
This decision reinforces that before SARS can make use of a third party as agent to collect monies:
- There must be a tax debt;
- The due date for payment of the tax debt must have expired;
- A letter of demand must be delivered to the taxpayer at least 10 days prior to issuing a notice to a third party who holds monies for and on behalf of the taxpayer concerned;
- The letter of demand delivered to the taxpayer must set out the recovery steps to be taken should the tax debt not be paid; and
- The letter of demand must also specify the relief mechanisms available to the taxpayer.
The Commissioner is therefore obliged to notify the taxpayer of its intention to use collection methods (such as appointing an agent) before making use of such provisions.
Another important point to note from the judgment is that the letter of demand must be delivered to the taxpayer (via electronic platform or to the last known address of the taxpayer). A notice generated by the eFiling system does not satisfy the requirement of delivery unless such notice is uploaded on to taxpayer’s profile.
Althea Soobyah is Tax Consulting Director at Mazars.