Tax Adminstration – Grounds on which an assessment can be withdrawn

sarsIf a taxpayer is unable to pay a tax debt, Chapter 14 of the Tax Administration Act No. 28 of 2011 (the TAA) makes provision for the taxpayer 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 irrelevant 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 TAA 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 TAA 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Where an assessment is withdrawn on these grounds, section 98(2) provides that it is deemed not to have been issued.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Expansion of the grounds on which an assessment can be withdrawn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 No. 39 of 2013(the TLAA), 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from 1 October 2012, amends section 98(1) of the principal Act and adds a further ground on which an assessment can be withdrawn (and deemed not to have been issued), namely, if it is an assessment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 errorby 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 debtin respect of an amount that the taxpayer should not have been taxed on;
(iii) the recovery of the tax debt under the assessment would produce ananomalous 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.

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 paragraph (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. Furthermore, (v) is so vague and woolly that it would be difficult for a taxpayer to successfully invoke the Promotion of Administrative Justice Act, No. 3 of 2000 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.

The taxpayers argument in terms of the amended section 98 of the TAA 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.