Africa-Press – South-Africa. A recent court ruling has clarified that the South African Revenue Service (SARS) cannot continue charging interest or reinterpret payment allocations after a tax dispute has been formally settled and paid.
When a tax dispute is settled and paid, most taxpayers, whether corporations or individuals, assume the matter is closed. However, a recent court decision shows that this is not always how SARS has approached matters in practice.
According to Unicus Tax Specialists founder Nico Theron, this issue raises fundamental questions about certainty and fairness in tax administration.
“At its core, a settlement should bring certainty. If a taxpayer pays what was agreed, they should be able to move on without the risk of ongoing interest being added behind the scenes,” he said.
The case of Inhlakanipho Consultants v CSARS involved a VAT dispute that was resolved through alternative dispute resolution.
A formal settlement agreement was reached, confirming the final amount payable, and the taxpayer paid this amount in full. Despite this, SARS continued to treat the liability as if it had not been fully settled.
SARS applied its internal payment allocation rules in a way that prioritised interest and penalties over the original tax debt (the capital).
This meant that, technically, part of the capital remained unpaid, even after the agreed amount had been settled, allowing interest to continue accruing.
“This is what we often refer to as the ‘allocation game’,” Theron explained. “If payments are applied in a certain way, it can create the impression that a debt still exists, even when the taxpayer has paid exactly what was agreed.”
SARS relied on section 166 of the Tax Administration Act to justify this approach. This provision allows SARS to allocate payments against different components of a tax debt.
The court pushes back against SARS
In the Inhlakanipho case, the court firmly rejected SARS’s position. It found that the settlement agreement was “clear and unequivocal” and that SARS could not, after payment, reinterpret the deal in a way that undermines its purpose.
In essence, a settlement is meant to bring finality to a dispute, not prolong it. “The court made it clear that settlements are not just administrative steps. They are binding agreements,” Theron said.
“SARS cannot accept payment and then use internal mechanisms to effectively undo the finality of that agreement.”
The court also dismissed arguments that system limitations justified SARS’s approach, reinforcing that administrative convenience cannot override legal obligations.
Importantly, the judgment does not mean that interest is never payable, as interest that accrued before payment may still be due.
However, what the court rejected was the idea that interest can continue to run after a taxpayer has already paid the agreed settlement amount in full.
“The key distinction is timing,” Theron noted. “This case wasn’t about avoiding interest altogether – it was about stopping interest from continuing to accrue after the debt was settled.”
This judgment is also not a blanket rule for all settlements. Agreements differ, and some may explicitly address how interest and payment allocation must be handled.
However, this case establishes that where a settlement is intended to be final, SARS may not be entitled to rely on its standard allocation rules to extend the life of a tax debt.
“If you’ve settled with SARS, paid the agreed amount, and you’re still seeing interest being added afterwards, that’s a red flag,” Theron said. “It may be worth reviewing whether SARS is entitled to do so in your specific case.”
For both corporations and individuals, this case makes it clear that no one should assume that payment automatically means closure.
For More News And Analysis About South-Africa Follow Africa-Press
