JOHANNESBURG – Economic pressures could prompt an increase in orders to preserve the assets of taxpayers for tax collection, a tax expert says.
Tarryn Atkinson, member of the Tax Administration Act subcommittee of the South African Institute of Chartered Accountants (Saica), says she has “no doubt” that the number of preservation orders will increase in future as the South African Revenue Service (Sars) is under pressure to collect more tax.
A preservation order allows a senior Sars official to apply for an order of the High Court to freeze the assets of a taxpayer and for a curator to be appointed to look after the assets during the time of the order, Wessel Smit, member of Saica’s National Tax Committee, explains.
Usually the court would hand down a preservation order where an explicit risk exists that a taxpayer with a potential or actual tax debt could sell or move assets and that Sars would not be able to collect the tax, Smit says.
But a recent judgment suggests Sars would have to prove that a real threat exists that assets would be moved or sold off and that it may not merely use the order as a pressure technique.
Atkinson says in the eTradex case, the financial and tax affairs of the taxpayers were in a horrible mess. No tax returns had been filed for several years and it was difficult to quantify the tax debt due.
Once the taxpayers realised their non-compliance had reached a point of no return, they tried to get their affairs in order.
Atkinson says they kept Sars updated, made payment plans and tried to get payments going even though they didn’t know what the value of the tax debt was.
Sars then applied for a provisional preservation order on an ex parte basis (where there is no representation of the taxpayer in court). The order was granted.
But when the taxpayers were called before the judge to put forward their case, they explained that they had taken significant steps to rectify the situation.
Atkinson says the judge was quite critical of how Sars approached the preservation order. In this instance the taxpayers were willing to co-operate, had interacted with Sars and had offered security.
The court said there was no risk that assets would be diminished or transferred to third parties and that Sars would not be able to get its money.
Atkinson says the judge seemed to be of the view that Sars had only used the preservation order as a pressure mechanism to get the taxpayers to hurry up with the process and he was quite critical of this approach.
The judge indicated that because this was an ex parte application and the taxpayers did not have an opportunity to present their case upfront, there must be some genuine risk that assets would disappear.
One of the reasons why the application is brought before the court without the taxpayer present is to avoid a situation where the taxpayer starts moving assets because he realised that Sars is turning up the heat.
“If there is no risk that assets are going to disappear then there is no need to have an ex parte application,” Atkinson says.
But how do taxpayers avoid a situation like this in the first place?
Taxpayers should ensure that their tax affairs are up to date. Submit tax returns early and don’t ignore communication from Sars, Smit says.