The Davis Tax Committee, which was established to make non-binding proposals on tax reform to National Treasury, recently concluded its work. One of the recently released reports concerned tax administration. In the report, the committee suggests a need for a ‘Taxpayer Bill of Rights’ which has a legal effect and confers enforceable rights on taxpayers, in order to improve taxpayers’ interactions with SARS and make SARS responsible in its dealings with taxpayers.
Interestingly, one of the rights suggested is the right not to pay tax amounts in dispute before the taxpayer has had an impartial review of the dispute, which the committee suggests is not compatible with the ‘pay now, argue later’ principle. The committee is of the view that the ‘pay now, argue later’ principle is being applied by SARS savagely, despite the fact that its constitutionality has not been tested and is likely an infringement of the right of property enshrined in the Constitution. The committee also notes that the ‘pay now, argue later’ principle creates a psychological bias in favour of SARS in discouraging taxpayers from pursuing appeals or reviews against assessments after they have paid the assessed tax over to SARS.
In order to strike a balance between taxpayer rights and SARS’ powers to collect taxes without the impediment of frivolous objections, the committee recommends, as a variation to the ‘pay now, argue later’ principle, that taxpayers should be required to deposit a portion of the assessed tax in dispute with SARS before being allowed to proceed with the dispute. The committee considers a deposit of 40% of the amount of the assessed tax in dispute as appropriate.
While it may be that the ‘pay now, argue later’ principle infringes on a taxpayers right to property, it does not follow that the infringement is unconstitutional and the committee does not reach any conclusion on the constitutionality of the ‘pay now, argue later’, despite its suggestions. In considering the constitutionality of the ‘pay now, argue later’ principle, the main points adopted by the Constitutional Court in Metcash Trading Limited v Commissioner, South African Revenue Service 2001 (1) SA 1109 (CC) in deciding that the ‘pay now, argue later’ principle did not breach of section 34 of the Constitution (access to courts) must be borne in mind – the public interest in obtaining full and speedy settlement of tax debts, which taxpayers should not be able to delay through the submission of frivolous objections;the prevalence of the ‘pay now, argue later’ principle in many other jurisdictions suggests that these principles are accepted as reasonable in an open and democratic society based on freedom, dignity and equality; and the effect of the rule on individual taxpayers is ameliorated by the power conferred on SARS to suspend payment of disputed tax.
While the findings of the committee are to be welcomed as part of the development of taxpayer rights, the committee has not explained whether the ‘pay now, argue later’ rule (as an infringement of the right to property) is really unconstitutional, having regard to the considerations applied by the Constitutional Court in the Metcash case.
From our reading of the committee’s suggested variation (for taxpayers to deposit 40% of the assessed tax in dispute with SARS before objecting to the assessment), it is not clear if this suggested variation would be available to taxpayers in addition to, or instead of, the existing remedy in section 164 of the Tax Administration Act, which allows taxpayers to apply to SARS for the suspension of the disputed tax pending an objection or appeal. It appears to us that the committee’s suggestion conflicts with the existing rights of taxpayers to submit an objection or appeal, without paying the disputed tax as the taxpayer’s failure to pay the committee’s deposit to SARS would prevent the taxpayer from objecting to the disputed assessment.
The suggested requirement to deposit 40% of the assessed tax in dispute with SARS before objecting to an assessment could be a significant hurdle for many taxpayers. Thus, the committee’s suggested variation to the ‘pay now, argue later’ principle, as we understand it, has the potential to infringe on the rights of taxpayers to property and access to courts. We submit that further consideration must be given to the remedies available to a taxpayer to ameliorate the infringement of the taxpayer’s rights. For example, could the committee’s suggested deposit could be reduced or waived by SARS?
As an alternative, the committee suggests that interest rates applicable to amounts paid to SARS in respect of disputed assessments could be linked to the prime lending rate so that taxpayers are not left out of pocket due to the time that lapses over the course of an open tax dispute. This recommendation does not address all of the shortcomings of the ‘pay now, argue later’ principle, such as the psychological bias that is created in favour of SARS.
For these reasons we submit that the committee could have given further consideration to its findings regarding the ‘pay now, argue later’ principle. Despite this, we hope the use of the ‘pay now, argue later’ principle will, in light of the committee’s findings, be given serious consideration by National Treasury and SARS.
Fyfe is an associate at Norton Rose Fulbright.