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Ombud highlights impact of inefficient tax administration on taxpayers.
Sars can arrange for an employer or bank to deduct or release funds to settle a taxpayer’s debt – but should do so ‘judiciously’ says the ombud. Picture: Moneyweb
Recent interventions by the Office of the Tax Ombud (OTO) have demonstrated the impact of inefficient tax administration and procedural delays on taxpayers.
The South African Revenue Service (Sars) was admonished for delays and the inefficient handling of its own dispute and objection process.
In one instance, its conduct resulted in a taxpayer being subjected to debt collection steps despite his objection having been resolved in his favour – causing “unnecessary distress”.
The matter flows from an inaccurately prepopulated tax return in 2022. The taxpayer noticed additional income on the return that should not have been included, but only after having submitted the return.
This resulted in an assessment of a tax liability of close to R49 000. The individual recalculated his liability and paid the correct amount before lodging an objection and requesting a suspension of payment for the disputed amount of just over R12 000.
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Sars did review the objection – and allowed it, but this did not trigger an automatic cancellation of the suspension of payment request that should have resulted in a reduced assessment.
What did happen was the appointment of third-party debt collectors despite the objection being allowed in favour of the taxpayer.
“Sars was at fault for failure to issue a reduced assessment after allowing the taxpayer’s objection,” the OTO found.
This administrative oversight meant that the third-party appointment was “unjustified and caused unnecessary distress to the taxpayer”.
A third-party appointment is a legal mechanism used by Sars to collect outstanding tax debts directly from a third party who holds or controls the taxpayer’s assets or income.
Sars may appoint, for example, an employer to deduct an amount from the taxpayer’s salary or a bank to release funds from the taxpayer’s bank account and pay them over to Sars.
“This process can have serious financial consequences, especially when Sars applied it in error.”
The OTO told Sars to immediately stop all debt collection measures and to withdraw the third-party appointment. It was also told to process the reduced assessment “without further delay”.
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This case highlights the importance of efficiency in tax administration and the impact of procedural delays on taxpayers.
The taxpayer acted promptly and correctly by lodging an objection and requesting a suspension of payment.
“However, Sars’s failure to issue a reduced assessment led to unnecessary debt collection actions that could have been avoided,” the OTO found.
Nico Theron, dispute specialist and founder of Unicus Tax Specialists, says in his experience, it is common for Sars to initiate collection steps in respect of disputed tax debt despite not being allowed to do so.
It will often threaten to collect when it is not legally allowed to. This then forces the taxpayer to take legal action.
While legal notices tend to swiftly take care of the problem it is very unfortunate that taxpayers must go through this legal process to protect their rights, says Theron.
“As someone dealing with disputes with Sars daily, I can attest that in the last few weeks of March 2025 [which is of course Sars’s year-end], we have served several legal notices where Sars has, in my view, unlawfully declined suspension of payment applications or threatened with unlawful collection action.”
Although it is not very common for Sars to initiate debt collection measures despite an objection being allowed, Theron believes the problem is that Sars neglects to issue a reduced assessment after the objection has been allowed.
“This is a problem in practice, mainly because there is no prescribed time period within which Sars is required to issue a reduced assessment after an objection has been allowed,” he adds.
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The OTO implored Sars to ensure the timely processing of reduced assessments after an objection is resolved and to use third-party appointments “judiciously”.
“Sars must strengthen its internal systems to ensure that once an objection is finalised in the taxpayer’s favour, the necessary adjustments are made timeously to prevent unjust debt recovery actions.”
Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC, says the challenge lies in finding the quickest and most efficient way to resolve incorrect assessments without getting entangled in lengthy administrative processes like disputes or payment suspensions.
“Nowadays, taxpayers prefer to resolve issues quickly and move on, rather than spending money on arguments with Sars about who is at fault,” she says.
“Ideally, Sars would learn from these mistakes and improve their administration with AI [artificial intelligence], machine learning, or simply better management.”
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Taxpayers must fully understand the Tax Administration Act, as well as Sars’s policies and procedures. This will assist with the effective management of verifications or audits, or to regularise a tax position.
“It is crucial to verify the correctness of the assessment and be aware of the next steps, such as dispute resolution mechanisms if the taxpayer disagrees with the assessment,” Rossato advises.
Adhering to the timelines and requirements prescribed by the act will likely result in a positive outcome if there are valid grounds.
“While Sars is working to enhance its AI capabilities … there is still a long way to go in improving systems and accountability,” she adds.
This article was republished from Moneyweb. Read the original here.
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