The High Court in Pretoria recently ruled that taxpayers have a right to receive “sufficient” notice before the SA Revenue Service instructs a bank to collect an outstanding tax debt.
The ruling is a victory for both taxpayer rights and the wider cause of administrative justice, according to Althea Soobyah, tax consulting Director at Mazars.
The case involved a company called SIP Project Managers, which saw SARS instruct its bank to pay over an outstanding tax amount.
SARS must now repay the money to SIP – together with interest as well as the costs of litigation – after the court found that the tax service did not provide sufficient notice to the company before it instructed the bank to pay over the outstanding debt.
By law, SARS can demand that third parties – typically banks – pay over outstanding tax debt.
But the law also requires that SARS must take steps before this is done, including notifying a taxpayer that they have an outstanding tax debt, and that further steps will be taken should the tax debt remain outstanding.
A key requirement is that the debt must be outstanding.
SIP Project Managers received a letter from SARS that there was a payable debt, which was due at the end of November. The letter was issued before the expiry date for payment specified in the tax assessment, Soobyah says.
In court, SARS contended that the letter notified the taxpayer that it would “appoint” the bank as an “agent” to pay over the outstanding debt.
But the court found that a notice to a bank and other third party “may only be issued after delivery of a final demand for payment which must be delivered at least 10 business days before the issue of the notice. This is a peremptory requirement before the step can be taken to issue a third party notice for the recovery of an outstanding tax debt”.
Accordingly, Soobyah says that for SARS to instruct a third party – like a bank – to collect money:
- There must be a tax debt
- The due date for payment of the tax debt must have expired;
- A letter of demand must be delivered to the taxpayer at least 10 days prior to issuing a notice to a third party who holds monies for and on behalf of the taxpayer concerned;
- The letter of demand delivered to the taxpayer must set out the recovery steps to be taken should the tax debt not be paid; and
- The letter of demand must also specify the relief mechanisms available to the taxpayer.
“Another important point to note from the judgment is that the letter of demand must be delivered to the taxpayer (via electronic platform or to the last known address of the taxpayer). A notice generated by the eFiling system does not satisfy the requirement of delivery unless such notice is uploaded on to taxpayer’s profile,” says Soobyah.