Africa-Press – South-Africa. A recent High Court judgment warned that, while SARS can still demand upfront payment of disputed tax, taxpayers with strong security and evidence can challenge the decision and potentially stop enforcement.
This was explained by Shepstone & Wylie Attorneys’ Tax Executive, Johan Kotze, and Partner, Freek van Rooyen, who noted that the ‘pay now, argue later’ rule is one of SARS’ most powerful weapons.
“If SARS issues an assessment and says you owe tax, they expect you to pay it – even if you believe the assessment is wrong and are challenging it in the Tax Court,” Kotze and van Rooyen said.
For businesspeople, that can mean facing crippling cash flow pressure long before a tax dispute is resolved.
However, Kotze and van Rooyen said the recent Gauteng High Court judgment in Ferreria v Commissioner for SARS is a reminder that SARS’ powers are not unlimited.
“The taxpayer, Mario Ferreria, faced additional income tax assessments of more than R531 million for the period 2009–2021.”
“The tax liability is disputed and is heading to the Tax Court. While the dispute was pending, he requested that SARS suspend payment in terms of section 164 of the Tax Administration Act.”
That section of the Act allows the taxman to suspend payment if certain conditions are met, Kotze and van Rooyen explained.
This includes cases where the recovery is at risk, where fraud is involved, where the taxpayer will suffer irreparable hardship, and where adequate security has been offered.
Ferreria initially offered security that SARS had been rejected. He then tendered something far more substantial: his 80% shareholding in TMM Holdings, valued at over R1 billion. “SARS still refused to suspend payment.”
The problem for SARS
Kotze and van Rooyen noted that, in court, SARS ultimately admitted that the shareholding was valued at over R1 billion – almost double the disputed debt.
“The High Court found this critical. If security worth more than the tax debt is pledged, it becomes difficult to argue that recovery is ‘in jeopardy’ or that there is a serious risk of asset dissipation.”
“More troubling for SARS was the court’s acceptance that its Independent Debt Committee may not have been properly informed of the full security tender when it made its decision.”
In other words, they said the most important fact in the taxpayer’s favour was not properly considered by the Committee. That, the court held, rendered the decision irrational and procedurally unfair.
“The court also engaged with commercial reality. Forcing immediate payment of R531 million would likely have required asset liquidations at ‘fire sale’ prices, potentially destroying ongoing business operations.”
According to Kotze and van Rooyen, even if the taxpayer later won in the Tax Court, the victory could be hollow.
“While the Constitutional Court has long upheld the constitutionality of ‘pay now, argue later’, this case confirms that SARS must still exercise its discretion rationally and fairly.”
Kotze and van Rooyen explained that the High Court made an unusual move in this case by not simply sending the matter back to SARS.
“It substituted its own decision, ordering that payment be suspended pending the resolution of the tax dispute – subject to the shareholding being pledged within five days.”
“Courts are generally reluctant to replace administrative decisions. That it happened here underscores how strongly the court viewed the flaws in SARS’s reasoning in refusing the suspension of payment.”
Importantly, Kotze and van Rooyen said the Ferreria case does not weaken SARS’ collection powers, since the ‘pay now, argue later’ principle remains firmly entrenched.
However, this case sends a clear message: SARS must properly consider credible security and cannot rely on formulaic references to ‘risk’ or ‘prejudice’ where the facts do not support them.
Kotze and van Rooyen added that the case is significant for businesspeople facing large disputed assessments.
“If meaningful security is available and properly tendered, and SARS refuses suspension without rational justification, judicial review remains a powerful – and sometimes decisive – remedy. In tax disputes, process matters even for SARS.”
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