SARS is coming after these taxes in South Africa – but its tactics are causing confusion

 ·11 Apr 2023

A new legal case between the South African Revenue Service (SARS) and a company that entered into business rescue during an assessment has legal experts scratching their heads over tax debts, and when the taxman thinks they should be established and owed.

According to Cliffe Dekker Hofmeyr, the facts of the case dealt with a company that submitted its tax returns for 2017 in a year it reported a loss. SARS notified the company that it would be audited, but the same company entered voluntary business rescue before the audit was completed.

The additional assessment by SARS ultimately found that the company owed over R8 million in tax and that this would be due by May 2018. However, by this point, the company was already well into business rescue proceedings.

SARS noted that the claim for income tax of R5 million, although raised in April 2018, was a pre-business rescue commencement debt. As such, SARS would have to recover this debt in terms of the business rescue plan.

However, other monies owed – equal to R3 million – were seen as post-business rescue commencement debt, which the tax service wanted to be paid out by the company.

SARS later argued that the income tax for the 2017 tax year had also only become due and payable on 31 May 2018, when the additional assessment was completed, as such it was owed with the post-commencement debt.

“In other words, it alleged that the tax debt only arose when the amount owing under the additional assessment was due and payable, which was 31 May 2018. On that basis, SARS argued that it constituted a post-commencement debt,” CHD said.

The main issue revolves around “tax debt”, which is defined in tax law as an amount of tax “due and payable” in terms of a tax act. The key issue before the court was whether the income tax liability was “due and payable” before or after the commencement of the business rescue proceedings.

On the one hand, SARS argued that the debt only became due and payable on the date the assessment was completed. On the other, the company involved argued that the assessment didn’t create the tax debt, and that it was always owed, thus it couldn’t be post-commencement debt.

The “assessment…only quantified the liability. It did not create the liability,” it argued.


The courts ultimately ruled in SARS’ favour. Citing Namibian court rulings, the judge in the matter said that, generally, the liability to pay tax does not make tax payable before it has been assessed.

However, CDH said that this raises some serious questions about tax debt in South Africa because more recent – South African – rulings have held the opposite view.

Most notably, in SARS’ recent case against billionaire Christo Wiese, the taxman argued the exact opposite of the case it just won.

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In that case, the companies involved argued that they did not owe the tax debt claimed by SARS because, at the time of SARS’ assessment, it did not exist. SARS, meanwhile, argued that the tax debt was always owed and didn’t need an assessment to determine that.

“As noted in a previous tax alert, the court in Wiese held that it would be “unbusinesslike but will also emasculate the very purpose of the TAA as a whole” to require an assessment to first be issued before there is a “tax debt” for purposes of section 183 of the TAA,” CDH said.

“Although the court in Wiese had to determine the meaning of what constitutes a tax debt within the context of section 183 of the TAA, the court made it clear that SARS did not have to issue an assessment to establish a tax debt under those circumstances. The court in Wiese noted that the debt exists irrespective of whether the taxpayer or SARS made an assessment.”

CDH said that it may be that the Wiese case can be distinguished from the latest case on the basis that, among other things, the Wiese case involved the application of the General Anti-Avoidance Rules (GAAR) and hence its interpretation of what constituted a “tax debt” was informed by this context.

However, this position was not clarified in the latest court case.

“It is therefore a pity that the court in this case did not address the Wiese case, which it could have done as Wiese was handed down a few months before this case was heard,” it said.

“Whatever the outcome may have been, there is much uncertainty now as to what constitutes a ‘tax debt’ and in what context. It will be interesting to see if this case goes on appeal to the higher courts in circumstances where much-needed clarity in this area of tax law is sought.”

The full details of the case can be read at Cliffe Dekker Hofmeyr.

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