Author: Amanda Visser (IOL)
Several financial institutions, including banks, have accused the South African Revenue Service (SARS) of not following its own processes when collecting outstanding tax debt; instead using them as its first port of call.
Statistics by the Banking Association of South Africa indicate banks each receive between 4 000 and 8 000 appointments on a monthly basis to collect tax debt on SARS’s behalf. This has increased from an average of 150 per month in previous years.
The administrative cost per appointment amounts to R200.
Tax commentators have requested that provisions in the Tax Administration Act, relating to the appointment of third parties to collect tax debt be subjected to judicial oversight, appropriate safeguards against abuse, including the exhaustion of other collection mechanisms first.
In their response document tabled before Parliament, SARS and the National Treasury said the statistics should be seen in the light of the “magnitude of SARS’s debt book”.
SARS has not accepted the concern about getting a court order before appointing a third-party to collect debt on its behalf.
A SARS spokesperson says the courts have held that the agency requires “extended powers” to recover tax debt in the light of the critical role taxes play in the functioning of society.
“SARS’ power to appoint a third party to collect a tax debt, without requiring a court order to do so, is such a power.”
Marelize Loftie-Eaton, head of external tax and tax administration risk and compliance at FirstRand, says banks had to create a dedicated department to deal with the huge increase in appointments.
“The teams vary between three and seven people per bank. During January to March, with SARS’ collection drive before its financial year end, the number of appointments increases to such an extent that banks need to increase the teams.”
Loftie-Eaton, who is also a committee member of the Banking Association’s direct tax committee says during this period the number of appointments can increase to 1 600 per day at R200 per appointment.
During December last year and March this year SARS issued around 70 000 appointments and Loftie-Eaton expects it to increase to 90 000 in the same period, starting December.
She notes it is not only banks who receive appointments to act as tax debt collectors. Employers, suppliers, life insurers, are all expected to collect tax debt, but banks get the bulk of the tax collections.
FirstRand received 18 000 appointment requests from January to March this year.
“If we consider our monthly statistics it is clear that SARS is not following its own collection process during the normal collection periods. Banks are definitely the first port of call.”
She says there is an increase in the number of appointment for individual taxpayers at the end of the month, which means their debit orders cannot be honoured, including payments on their homes, cars, school fees and even policies.
“SARS collects between 40 percent and 120 percent of salary paid into bank accounts,” Loftie-Eaton says.
Piet Nel, head of the School of Applied Tax at the SA Institute of Tax Professionals, says the real problem is that taxpayers are often unaware they have outstanding tax debt.
This is because SARS does not contact the taxpayer before the third-party is appointed to collect the debt.
SARS has undertaken to redraft amendments to the Act to allow for prior notice and opportunities to apply for debt relief based on basic living expenses, or in the case of a business, serious financial hardship.
However, when SARS suspects there is “a risk of dissipation of the assets, taxpayer flight and deregistration of tax debtors that are legal entities no prior notice will be given to the taxpayer.
In a case where no prior notice was given, SARS has undertaken to disclose the reasons to the taxpayer “as required under its constitutional obligations to do so,” says the spokesperson.
Nel says SAIT understands the original intention was to use this power for jeopardy and problematic collection cases.
“Our concern now is that it seems to be used in all cases and in some instances as the first port of call. All too often SARS raises an additional assessment, and even where the taxpayer commenced the dispute process, SARS will proceed with the collection process,” Nel adds.
This article first appeared on iol.co.za.