An amendment to the Tax Administration Act expands the grounds on which an assessment can be withdrawn
If a taxpayer incurs a tax debt that he is unable to pay, Chapter 14 of the Tax Administration Act 28 of 2011 makes provision for him to apply to the South African Revenue Service (SARS) for the debt to be written off or compromised, that is to say, partially written off.
However, SARS is in the business of collecting tax, not of waiving the payment of tax. It will only write off a tax debt if it is in its own interests to do so, for example because it would be impossible or uneconomic to collect the debt. The fact that the taxpayer would suffer hardship if he had to pay the tax debt is a total irrelevance in this regard, and is not a factor that SARS takes into consideration.
A taxpayer who applies to SARS for the writing off or compromise of a tax debt in terms of Chapter 14 of the Tax Administration Act must submit a formidable amount of documentation. The process takes a long time, and such applications are often unsuccessful.
A simpler process for clearing a tax debt – withdrawal of the assessment
The Tax Administration Act provides in section 98(1) for a simpler process, which entails not the writing off of a tax debt, but the withdrawal of an assessment. However, until the amendment discussed below, this process was available only in a very narrow range of circumstances, namely where an assessment –
- was issued to the incorrect taxpayer;
- was issued in respect of the incorrect tax period; or
- was issued as a result of an incorrect payment allocation.
Where an assessment is withdrawn on these grounds, section 98(2) provides that it is deemed not to have been issued. This effectively extinguishes the tax debt.
Expansion of the grounds on which an assessment can be withdrawn
The Tax Administration Laws Amendment Act 39 of 2013, effective from 1 October 2012, amends section 98(1) of the principal Act and adds a further ground on which an assessment can be withdrawn (and deemed not to have been issued), namely, if it is an assessment –
“(d) in respect of which the Commissioner is satisfied that—
(i) it was based on—
(aa) an undisputed factual error by the taxpayer in a return; or
(bb) a processing error by SARS; or
(cc) a return fraudulently submitted by a person not authorised by the taxpayer;
(ii) it imposes an unintended tax debt in respect of an amount that the taxpayer should not have been taxed
(iii) the recovery of the tax debt under the assessment would produce an anomalous or inequitable result;
(iv) there is no other remedy available to the taxpayer; and
(v) it is in the interest of the good management of the tax system.’’ (Emphasis added.)
The first part of this amendment will buoy the hopes of taxpayers, but those hopes will be dashed when reading (iv) and (v), above.
For it is difficult to conceive of a situation in which there is no other remedy available to the taxpayer – unless this expression can be read to mean, unless the taxpayer had a remedy which, through effluxion of time or otherwise, is no longer available to him. Such a reading would allow a taxpayer to invoke this provision where the time limit for lodging an objection or appeal has expired.
But if para (iv) is given a narrow interpretation, it renders the entire provision a dead letter, for there is no situation in which a taxpayer who does not, in fact owe tax had no remedy. And (v) is so vague and woolly that it would be difficult for a taxpayer to successfully invoke PAJA to challenge a decision by the Commissioner that it was not in the interests of good management of the tax system to withdraw the assessment in question.
A hypothetical scenario
Take this hypothetical scenario.
A taxpayer renders services. The income for those services accrues to him but is never received because the debtor never pays him. When filing his return, the taxpayer includes the due amount in his gross income as accrued income.
The person by whom the amount is payable continues to promise the taxpayer that the amount will be paid, and the taxpayer accepts the promise in good faith, but months and years go by and it is never paid.
Clearly, the taxpayer ought to have claimed the amount as a bad debt in the year of accrual, but he omitted to do so because he believed the promise of payment. He has thus been assessed on income that he has never received and it is now clear that he will never receive it, because the payer has been sequestrated and none of his concurrent creditors have received anything.
The taxpayer’s argument in terms of the amended section 98 of the Tax Administration Act is that the assessment in respect of the income that he has never received –
“imposes an unintended tax debt in respect of an amount that the taxpayer should not have been taxed on [and] the recovery of the tax debt under the assessment would produce an anomalous or inequitable result”.
This provision seems to fit the facts, for the assessment in question, which included the bad debt, imposes a tax debt that he should not have incurred.
But the taxpayer did have a remedy. He could have claimed the amount as a bad debt, but failed to do so, and he therefore cannot clear the hurdle imposed by section 98(1)(d)(iv) – unless the court interprets this provision benevolently so as not to bar a taxpayer who had a remedy which is no longer available to him.
This article first appeared on pwc.co.za.