However, he says it is an “attractive proposition” that a neutral body, such as the Office of the Tax Ombud, should have the power to decide whether the payment, or a portion of the payment, can be suspended until a dispute is resolved.
The main reason for the rule is to ensure that Sars is not out of pocket during the process of appeal or review.
However, the Davis Tax Committee said in its report on tax administration, which was released a year ago, that the rule has the effect of discouraging taxpayers from engaging in appeal or review processes against Sars, because, psychologically, the taxpayer had already “lost” the money.
“This rule creates a huge bias in favour of Sars. The argument that taxpayers often raise frivolous objections serves to ignore various other available measures of determining the validity of objections,” the Davis report stated.
Thabo Legwaila, a member of the Davis committee and professor in tax law at the University of Johannesburg, said that when the legislator wrote the “pay now, argue later” provision, it did not consider any other options.
In many African countries, taxpayers are allowed to pay a “deposit” when they object to an assessment. In some countries, taxpayers have to pay between 20% and 40% of the assessed amount that is in dispute, to ensure they do not raise frivolous objections to avoid paying tax.
The Davis committee recommended that taxpayers should pay 40% of the claim by Sars.
Legwaila told delegates at the recent Annual Tax Indaba, hosted by bodies such as the South African Institute of Tax Professionals and the South African Institute of Professional Accountants, that another option was to impose higher interest rates on the amount due when there has been a frivolous objection.
He suggested a system whereby an independent body looked at the preliminary facts to determine whether a payment could be suspended. The Davis committee proposed that the role be given to the Tax Ombud.
Eric Mkhawane, the chief executive of the Office of the Tax Ombud, said at the indaba that the rule could not be abolished as it could lead to the collapse of the tax system.
He said the Constitutional Court found the clause to be constitutional because there was a discretionary element. The taxpayer could always approach Sars and request the suspension of payment until the dispute was settled.
Mkhawane agreed that Sars should not decide whether the suspension of payment was granted. If a body such as the Office of the Tax Ombud considered a request for the suspension of payment, it could help to “avoid issues of bias”.
Ngoepe said that when he was judge president, he was approached by the then minister of finance to facilitate hearings of tax matters.
He said some taxpayers would drag out matters because they had deep pockets, and in those instances the “pay now, argue later” rule could be justified.
Taxpayers are required to pay in full if a suspension of payment is not granted.