Homepage

New guidelines on pay now argue later

Deloitte VAT department

14 December 2009

VAT vendors may now ask the Commissioner to suspend the payment of tax where the liability is disputed.

On September 30 this year, section 36 of the VAT Act was changed. Previously, that section called "payment of tax pending an appeal" - used to provide that taxpayers were required to "pay now, argue later" regarding any disputed amounts of VAT, interest and penalties that had been assessed. There was a small clause allowing the Commissioner the right to give a lenient ruling - but that was seldom the case.

South Africa's Constitution deals with "Just Administrative Action - which grants everyone the right to administrative action that is lawful, reasonable and procedurally fair. It also requires national legislation to be enacted to give effect to those rights and imposes a duty on the State to give effect to such rights. The Constitution further requires public administration to be governed by the democratic values and principles enshrined in the Constitution, including that services must be provided impartially, fairly, equitably and without bias. In addition, the Promotion of Administrative Justice Act was created to give effect to taxpayers' constitutional rights.

Sars is therefore required to ensure all its laws and actions are administratively just. It is against this regulatory background that section 36 of the VAT Act was amended. The new wording confirms a taxpayer's obligation to pay VAT, additional VAT, penalty or interest isn't suspended by any objection, appeal or pending the decision of a court of law. However, it now emphasises a VAT vendor may ask the Commissioner to suspend the payment of tax where the liability is disputed.

The Commissioner's discretion to suspend payment must be based on the following factors:

The compliance history of the vendor;
The amount of tax involved;
The risk of dissipation of assets by the vendor during suspension;
Whether the vendor can provide security for the tax;
Whether payment of the tax would result in irreparable financial hardship;
Whether sequestration/liquidation proceedings are imminent;
Whether there's fraud; and
Whether the vendor has failed to provide any information to Sars.

The Promotion of Administrative Justice Act empowers taxpayers to request reasons for the denial of a request to suspend payment. The new guidelines should assist taxpayers to assess whether they were afforded procedurally fair treatment.

In addition, where Sars is required to refund amounts to the taxpayer - both in terms of section 36 and under ordinary circumstances where there has been an over payment of tax by the vendor - it must also pay the taxpayer interest at the prescribed rate.

Two other clauses were also included in the VAT Act. The first limits the Commissioner's discretion to waive the interest charge to situations where the non-payment of tax was due to circumstances beyond the control of the taxpayer. The second allows the Commissioner to prescribe any interest on any outstanding amount payable in terms of the VAT Act must be compounded.