There is growing concern among taxpayers about what appears to be a rigid approach to cash collections at the South African Revenue Service (Sars). There are also complaints about the service’s increasing pattern of disregarding the factual information taxpayers provide to it.
The disillusionment is showing up in the courts. The volume of procedural disputes heard at all levels of court has been growing over the past decade, as has the number of tax cases reaching the Constitutional Court, demonstrating increased taxpayer dissatisfaction with Sars’ decision-making processes.
Recent practices adopted by Sars are compounding this disgruntlement, especially about aspects of the “pay now, argue later” rule. Section 164 of the Tax Administration Act should act as a counterbalance to this rule if:
- There is a bona fide dispute about the amount Sars has assessed.
- It is unlikely, based on the nature of the dispute and the taxpayer’s compliance history, that Sars will struggle to recover the disputed amount in due course (if it succeeds in the dispute).
- The prejudice to the taxpayer in having to make an immediate upfront payment outweighs the hardship Sars suffers due to the delay in collecting the assessed amount.
Taxpayers in these circumstances are increasingly facing two big obstacles. The first is a Sars “systems error” that is blamed for drastically reducing the time taxpayers legally have to apply for suspension of payment. The other is Sars’ insistence that taxpayers make part payment of a disputed amount before the commissioner will grant suspension of the balance.
Increasingly, this is happening to taxpayers who are generally compliant and trustworthy and have taken steps to meet the requirements of section 164(3), such as demonstrating irreparable hardship and offering other forms of security against the disputed debt.
System error blamed, but not fixed
Section 164 of the act requires only that the taxpayer must intend to dispute an assessment to request suspension of payment. A dispute must be initiated within the statutory 80 business days.
A suspension of payment application must be submitted before the due date for payment stipulated in the assessment (typically 30 days) to avoid Sars taking collection action regarding the assessed amount.
However, in practice if the taxpayer does not immediately institute a dispute Sars often automatically rejects suspension of payment applications on the basis that a dispute was not lodged in time. The revenue authority attributes this to a system error, which is yet to be corrected.
It seems peculiar that a “system error” should truncate the statutory period to object, especially as Sars and National Treasury saw fit to extend the 30-day period previously provided for under section 104 and Rule 7 of the Tax Administration Act rules to 80 days.
Then there is Sars’ treatment of taxpayers applying for suspension of payment of a disputed amount.
Unfair and potentially unlawful
Sars is implementing the suspension of payment provisions in the act in an unfair and potentially unlawful manner by in effect requiring taxpayers to make a down payment of a portion of the disputed amount to secure a suspension and refusing suspension if the taxpayer cannot pay, or if Sars arbitrarily deems the security offered insufficient. This is if the other factors Sars is required to consider motivate in favour of suspension.
These factors, listed in section 164(3), include a good tax compliance history, no allegations of fraud, no risk of collection jeopardy or dissipation of assets, and the taxpayer being able to show irreparable hardship that outweighs any temporary hardship to Sars.
In the past, if these factors supported suspension Sars would not require security in most instances. If the amount was particularly significant, Sars might accept a bank or parent company guarantee as adequate security. Now, the authority routinely demands part payment of the disputed amount to secure suspension of payment, often without apparent regard for the taxpayer’s submissions or how they affect the proper exercise of the discretion Sars has to grant suspension of payment.
From a public law perspective, a discretion intended to be exercised with reference to specific factors must be exercised in accordance with those factors. In terms of the Promotion of Administrative Justice Act the decision must be rationally connected to the empowering legislation and the information before the administrator.
New court judgment vindicates taxpayer
In the recent high court judgment handed down in Ferreira v Commissioner for the South African Revenue Service (February 2 2026), the taxpayer successfully reviewed and set aside Sars’ decision to refuse his suspension of payment application, on the basis he had tendered adequate security for the disputed debt.
Sars had refused the taxpayer’s suspension application on the basis the recovery of the tax debt would be in jeopardy or there would be a risk of dissipation of assets if the suspension was granted, that immediate payment of the disputed amount of about R531m would not result in irreparable hardship as contemplated by section 164(3)(d) of the Tax Administration Act, and that fraud was involved in the origin of the dispute, despite that the taxpayer tendered offers of security against the disputed debt, including a pledge of shares Sars admitted had a value of more than R1bn.
The high court found Sars’ refusal was irrational having regard to the facts, particularly the irreparable financial and commercial harm that would result if the taxpayer was forced to urgently liquidate assets to satisfy the disputed debt immediately, and the adequacy of the tendered security in resolving any concerns Sars may have had regarding dissipation or jeopardy.
Conversely, the court found the only conceivable prejudice Sars might suffer if immediate payment of the disputed amount was suspended would be one of cash flow.
This judgment throws into stark relief the issues that compliant, honest and reputable taxpayers struggle with. Though it is greatly encouraging to see the high court hold Sars to the standards of procedural fairness and rationality required by the Promotion of Administrative Justice Act and the principle of legality, this judgment will be cold comfort for those taxpayers who cannot afford to approach the courts for relief when faced with the same dilemma.
Taxpayers and advisors can only hope Sars will go back to the drawing board and review internal policies about decision-making to ensure taxpayers’ rights to lawful, reasonable and procedurally fair administrative action are protected, and to avoid further disputes.
• Dr Choate is a partner at Pan-African corporate law firm Bowmans.
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