SOUTH AFRICA: GOOD FOR THE GOOSE, BUT NOT FOR THE GANDER – SARS CAN DELAY INTEREST ON YOUR OVERPAYMENTS

By Julia Choate,Patricia Williams Tuesday, February 16, 2021
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This is the first in a series of three newsflashes examining amendments to tax administration laws that were promulgated late last month. The amendments are indicative of SARS' need to focus on maximising collections and preserving liquidity, which are likely to be among the themes addressed at next week’s National Budget Speech.

The amendments to the Tax Administration Act 28 of 2011 (TAA) proposed in the 2020 Taxation Laws Amendment Act (TALAA) were promulgated on
20 January 2021. One of these amendments impacts SARS’ obligations to calculate and pay interest on overpaid amounts.

In terms of South African common law (and most other legal systems), a party that has been deprived of the use of its funds, or capital, suffers a commercial loss, and is compensated for that loss by an award of interest. Accordingly, in most circumstances, the date on which a party is deprived of its funds is the date on which interest begins to run, until the date of final repayment.

This common law principle is the foundation of a number of statutory interest provisions governing interest, and was previously reflected in the wording of section 187 of the TAA:

  • Section 187(3)(g) of the TAA provided that where SARS makes an overpayment to a taxpayer, interest runs from the time that the excess amount was paid by SARS (the effective date) until the date that the taxpayer repays the excess refund to SARS; and
  • Section 188(3)(a) of the TAA provided where a taxpayer pays SARS more than the assessed amount, interest runs from the later of the effective date or the date that the excess was received by SARS, until the date the overpayment is refunded to the taxpayer.

According to these sections, SARS and the taxpayer were treated equally in terms of compensating the other party for the benefit of receiving an overpaid amount to which that party was not legally entitled.

However, the insertion of section 187(3)(h) into the TAA appears to skew the status quo in SARS’ favour. Although we have yet to see how SARS will implement this amendment in practice, it appears that SARS is only required to calculate interest on an overpayment after a 30-day period has elapsed, while taxpayers will remain liable for interest on overpayments made to them by SARS, from the date of payment.

The rationale for this amendment is to provide SARS with enough time to review and correctly classify any overpayments, so that if the taxpayer has existing tax debts, the ‘excess’ amount can be set off, so that SARS does not calculate and pay interest to taxpayers who simultaneously owe SARS outstanding tax and interest. However, it is unclear why Treasury chose an approach that appears to result in the forfeiture of interest for taxpayers.

A far more fair and impartial approach would be for SARS to delay the accrual of interest for a reasonable period, to allow SARS to analyse the taxpayer’s account and allocate the overpaid amount to other tax debts, to the extent this is permissible (it is important to note that SARS is not permitted to set-off refunds against other tax debts in circumstances where the tax debt is being disputed).

Once SARS has established that there are no outstanding tax debts and the amount is a ‘genuine overpayment’, SARS could retrospectively calculate and pay the interest owing to the taxpayer, together with the refund.

SARS has indicated an intention to increase tax morale and voluntary compliance by reducing the administrative compliance burden on taxpayers. Unfortunately, this amendment means that taxpayers will need to be considerably more vigilant when submitting returns and making payment to SARS, to ensure that they are not ‘penalised’ for accidentally paying SARS too much money.