1 July 2011 by

Pay now, argue later - some further developments

Despite having entered an objection against an assessment, or having noted an appeal against the disallowance of such objection, it is a reality that a taxpayer may be met by the sheriff, on his doorstep, ready to enforce payment of the amount of tax allegedly due to SARS. This is the practical effect of the "pay now, argue later" principle, as embodied by sections 88, 91 and 92 of the Income Tax Act No. 58 of 1962 (the Act).

Section 88 lays the foundation for the "pay now, argue later" principle and simply provides that the obligation to pay tax is not suspended by any objection or appeal. The section does, however, allow SARS to suspend the obligation to pay at the request of the taxpayer. As of 1 February 2011, the section lists certain factors that SARS must consider when coming to any such decision.

Section 88 is bolstered by section 91(1)(b) of the Act, which provides that where a person has failed to pay any tax that is due and payable, SARS may file a statement with the clerk or registrar of a competent court, which statement will have the same effect as a civil judgment. Therefore, armed with such a "civil judgment" in its favour, SARS may obtain a writ of execution and instruct the sheriff to attach the assets of the taxpayer. In addition, section 92 of the Act prevents a taxpayer from challenging the correctness of such a "civil judgment" and the execution process can therefore not be hindered in this manner.

Ever since the decision in Metcash Trading Limited v Commissioner for the South African Revenue Service 2000 (4) SA 317 (CC), the taxpayer's position has been dire, as the court in that case upheld the constitutionality of the "pay now, argue later" principle.

Spilg J, sitting in the South Gauteng High Court, in Sepataka v Comissioner for the South African Revenue Service 72 SATC 279, recently gave aggrieved taxpayers some hope. In his view, section 91 stands somewhat separate from the "pay now, argue later" principle, and, according to him, it would be incompetent and unlawful for SARS to obtain "civil judgment" where an objection or appeal is not yet finalised. He further states, in no uncertain terms, that it should be a prerequisite for the filing of a notice in terms of section 91(1)(b) of the Act that "the responsible person has satisfied himself or herself from the records maintained by SARS that no objection or appeal is pending or if lodged has been finally disposed of so that there is no impediment to filing the statement."

Binns-Ward J, sitting in the Western Cape High Court, in Capstone 556 (Pty) Ltd v Commissioner for the South African Revenue Service (unreported judgment delivered 22 June 2011, case number 26078/2010), disagreed with Spilg J. He notes that the filing of a statement in terms of section 91(1)(b) is simply an enforcement mechanism by which SARS can exact payment of the amount that the taxpayer is obliged to pay. A statement in terms of section 91(1)(b) is not a true civil judgment and does not determine a taxpayer's liability to pay. It merely has the "effect" of a civil judgment and enables SARS to obtain a writ of execution in order to exact the amount that the taxpayer is obliged to pay. Since a statement in terms of section 91(1)(b) is simply a recovery mechanism, and since it is clear that the fact that an appeal is pending has no effect on the taxpayer's obligation to pay, the said mechanism may be used to recover taxes due irrespective of whether an appeal is pending.

As if the aforegoing is not demoralising enough to aggrieved taxpayers, the learned judge concludes by noting:
"In the context of the decision in Metcash, the prospect of a successful attack on the constitutionality of [section 88 of the Income Tax Act], in so far as it bears on the obligation to pay now and argue later pending the determination of an appeal...is, to say the least, remote."

Emil Brincker and Heinrich Louw

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