The decision of Rogers J, in Commissioner for the South African Revenue Service v Tradex (Pty) Ltd and others (9 September 2014, case no 12949/2013, as yet unreported) has raised a number of issues pertaining to the circumstances under which the South African Revenue Service (SARS) is entitled to obtain a preservation order against a taxpayer in terms of s163 of the Tax Administration Act, No 28 of 2011 (TAA). Ultimately it was found that SARS was not entitled to a preservation order as it was not ‘required’ to secure the collection of the taxes that could have become due in that instance.
The fact that SARS was unsuccessful with the preservation order, does not imply that it does not have a wide array of remedies available to it in the case of a delinquent taxpayer in terms of the provisions of the TAA. Rogers J was at pains to point out in a number of instances that SARS could have used a number of other remedies to obtain the relevant documents and/or information from the taxpayer. Equally, he could have raised assessments against the taxpayer on an estimated basis as well. The confusion came in on the basis that SARS primarily relied upon the lack of information to obtain the preservation order as opposed to making use of one of its other remedies as envisaged in the TAA.
Amongst others, Rogers J indicated at paragraph 55:
“While I can understand SARS’ frustration, that is not the purpose of the preservation application. There are other statutory mechanisms available to SARS to deal with taxpayers who fail to provide information, to render returns or to make payment of tax (see, in particular, the information-gathering provisions of Chapter 5 of the TAA, SARS’ power to issue estimated and so-called jeopardy assessments in terms of Chapter 8, the tax-recovery provisions of Chapter 11, the administrative non-compliance penalties which can be imposed in terms of Chapter 15 and the criminal offences created by Chapter 17).”
Insofar as the information-gathering powers of SARS are concerned:
- SARS is entitled in terms of s45 of the TAA to carry out an inspection at premises where a SARS official has reasonable belief that a trade or enterprise is being carried on.
- s46 provides for SARS to request relevant material from a taxpayer;
- a SARS official is entitled in terms of s48 to require a person to provide the relevant material that the official may require to audit or criminally investigate in connection with the administration of a tax Act in relation to such person or any other person. In other words, it can also obtain the information from an auditor to the extent that a taxpayer may fail to provide same;
- importantly, s50 onwards provides for the establishment of an enquiry. A person may not refuse to answer a question during an enquiry on the grounds that it may incriminate such person. In addition, the enquiry is not suspended by civil or criminal proceedings.
To the extent that SARS is not able to obtain the relevant information, it can also apply for a warrant to enter premises in circumstances where an application is made on an ex parte basis to a Judge.
To the extent that SARS is not able to obtain the information, Chapter 8 of the TAA provides that SARS can not only issue jeopardy assessments, but also estimated assessments.
A jeopardy assessment can be made in advance of the date upon which a return is normally due if SARS is satisfied that it is required to secure the collection of tax that would otherwise be in jeopardy. An estimated assessment may if the taxpayer fails to submit a return as required or submits a return or information that is incorrect or inadequate.
Once an assessment has been issued, a number of other doors open up for SARS. A preservation order is applicable in circumstances where the amount of tax has not yet been ascertained. Once an assessment has been issued, however, the so-called ‘pay now, argue later’ principle applies.
Section 164 of the TAA provides that the obligation to pay tax is not otherwise suspended by an objection or appeal. However, if an application has been made to suspend a payment for tax, SARS cannot institute collection proceedings for a period of ten business days after notice of the SARS’ decision.
At paragraph 74 of the judgment, Rogers J indicated:
“Once tax has been assessed or is otherwise due and payable, the pay-now-fight-later regime applies unless a senior SARS official otherwise directs (s164). SARS may, if the taxpayer fails to pay on due date, obtain civil judgment in terms of s172 of the TAA. SARS is not required to give notice of the application for civil judgment if the giving of such notice would prejudice the collection of tax (s172(3). SARS may thereupon levy execution in the ordinary way against assets belonging to the taxpayer. SARS can also institute sequestration or liquidation proceedings (s177-178) and is in certain circumstances accorded rights of recovery against third parties (ss179-184)”.
It is important to appreciate that SARS can even obtain judgment pursuant to an estimated or jeopardy assessment without giving notice of the application for civil judgment if the giving of the notice would prejudice the collection of tax.
Lastly, SARS can also obtain security for the payment of tax from the taxpayer in terms of s161 of the TAA. One of the instances where such security can be obtained is if the taxpayer has frequently failed to pay amounts of tax due or has frequently failed to carry out any other obligations imposed under a tax Act. Importantly, in the case of a taxpayer which is not a natural person, SARS can also require the members, shareholders or trustees who control or who are involved in the management of the taxpayer to enter into a contract of suretyship in respect of the liability for tax which may arise from time to time.
One can expect that the judgment of Rogers J in the Tradex case is not the end of this saga, but probably only the beginning. Given the other remedies that are available to SARS, one can expect a number of other steps to be taken by SARS in order to obtain information and/or ultimately to potentially issue assessments. The moment an assessment is issued, the collection of the tax allegedly due becomes easier and security can be obtained for the payment of the taxes.