PAY NOW ARGUE LATER AND SECTION 164 OF THE TAA – IS THE RULE TIPPING THE SCALES OF JUSTICE?

Section 164 of the Tax Administration Act 28 of 2011 (the “TAA”), and the conduct of SARS in administering the empowering provision, seems to be at the impasse with taxpayer’s rights. The Section immortalizes the “Pay Now, Argue Later” rule. The seminal case of Metcash Trading v SARS is the leading authority on the constitutionality of obligation to pay your taxes (and the suspension of same pending the outcome of an objection or appeal). In the writer’s view, Metcash requires reconsideration. Further, s 164 of the Tax Administration Act is, arguably, susceptible to a constitutional challenge on fresh grounds.

Metcash deals with the former Section 36 of the Value Added Tax Act 89 of 1991 (the “VAT Act”). The wording of Section 36 is comparable to that of Section 164, with the exception of the latter enabling a senior SARS official to decide whether an application under this provision shall succeed.¹Metcash also dealt with the constitutionality of Section 36, having regard to the right of access to courts as contemplated within Section 34 of the Constitution and not, for example, the right to fair, lawful, and reasonable administrative action contained within Section 33. On the contrary, had the taxpayer challenged the impugned Section 36 of the VAT Act (at the time) on grounds of administrative justice principles the outcome could arguably have been different. ²Moreover, and linked to the question of a fair and efficient public administration, recent jurisprudence appears to indicate that the judiciary is taking increased notice of Section 195 of the Constitution. Recent case law shows that the non-justiciable Section is becoming more prevalent in our tax law jurisprudence by way of an indirect application as is explained below.

Some may argue that Section 195 is not a justiciable right. This argument will be correct insofar as the autonomous nature of Section 195 is concerned, i.e., if it is considered in isolation. However, when read in tandem with Section 4(2) of the South African Revenue Services Act 34 of 1997 (the “SARS Act”), the position seems to be different. Section 4(2) is a mandatory provision that obliges SARS to comply with the provisions of Section 195. This means that SARS must act in a way that includes a high standard of professional ethics. It must be done impartially, fairly, and unbiased. It also requires the efficient, economically sound, and effective use of resources. Lastly, the public administration of taxation must be accountable and transparent by providing the public with timely, accessible, and accurate information. If the revenue authorities fail to adhere to these obligations, their conduct becomes reviewable in that they are acting ultra vires Section 4(2). As such, it would appear that Section 4(2) of the SARS Act entrenches the principles set out in Section 195 of the Constitution such that it imbues the Section with an element of justiciability.

The case of Nondabula v the Commissioner of SARS is a prime example of an instance (or instances) where SARS has failed to comply with these administrative justice principles, in that it acted outside of the relevant empowering provisions. ³The court had to contemplate whether SARS could proceed with fulfilling its task of collecting assessed taxes if it did not furnish a Notice of Assessment⁴ which is required to issue a Third-Party Appointment,⁵ as mandated. The court held that SARS had failed to comply with the constitutional obligations that SARS, as an organ of the state, has in terms of Section 195 of the Constitution. SARS had not acted in an accountable manner as it had not complied with the relevant legislation. Section 3(2)(e) of the TAA enables the collection of taxes and refunds of taxes that are overpaid. That power cannot be ignored or abused. The court held that SARS had not acted transparently, as it had failed to provide the public, i.e., the taxpayer, with timely, accessible, and accurate information.⁶ Based on the foregoing, the court concluded that the conduct of SARS had been both unlawful⁷ and unconstitutional.

The TAA is pivotal when it comes to the enforcement, administration, and application of its tax provisions. This is because it consolidates the administrative provisions, rules, and procedures that give effect to the Tax Acts.⁸ The outlined purpose of the TAA as read with Section 3(2), recognises the rights of taxpayers and the importance of serving the interests of the national fiscus. Taxation, as a tool, is crucial for the development of a stagnant economy besieged within South Africa. On a higher level, the efficient and effective collection of taxes is critical to enable the government to fulfil its mandate under the Constitution of the Republic of South Africa. ⁹Moosa confirms that this mandate includes bringing about socio-economic transformation, which is part of transformative constitutionalism via the progressive realization of socio-economic rights.¹⁰ He goes on to persuasively argue that the willful non-payment of tax is "antithetical to the values of democracy, Ubuntu, and the rule of law".¹¹ Therefore, a purposive interpretation of Section 164 (as well as other enforcement mechanisms within the TAA) requires that the administration of the provision be tuned into the protection and respect for taxpayers’ rights.

If SARS declines an application for the suspension of the obligation to pay without providing adequate reasons, it is an infringement of the taxpayer’s rights to administrative justice. If SARS take steps to recoup/collect a tax debt against from a taxpayer through Section 179 and/or Section 172 of the TAA (in terms of which the Assessment is given the status of a civil judgment against the taxpayer) and proceed with attachment and execution steps despite the Section 164 notice- such conduct would be unconstitutional. The action is ultra vires.

Failure to provide the taxpayer with an outcome to an application under Section 164 on the e-filing platform, or the failure to issue an acknowledgement of receipt (if the communication was electronic), will not be considered as delivery of communication by SARS. Lastly, the fact that SARS can invoke Section 164(1) without allowing a taxpayer to challenge this decision at the time of its activation is arguably unconstitutional given the proportional balance of public interest and prejudice to the taxpayer that immediately follows such invocation. The aforementioned scenario begs the question of whether the "Pay Now, Argue Later" rule is outdated or not, and whether it is in conformity with constitutional developments in the tax law arena. The TAA is administrative legislation in nature and operates in conjunction with (and intends to give effect to) the rules and principles of the Promotion of Administrative Justice Act 3 of 2000 and Section 33 of the Constitution. As a result, it must uphold certain constitutional standards and respect the rights of taxpayers.

Section 164 arguably requires a reconsideration through the prism of Section 33 of the Constitution and it is submitted that the SARS and taxpayers should strive to implement a more balanced and less draconian approach when it comes to the collection of taxes that are in dispute.

Intellectual property disclaimer:
The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.