Sars behaving badly: Revenue service exercised ‘unreasonable discretion’ in disallowing penalty

High Court rules taxpayer had reasonable grounds for the penalty imposed to be remitted.
Was Sars’s behaviour driven by the fact that this was close to the end of the financial year; were its actions influenced by the need to collect revenue? Image: Moneyweb

In a judgment handed down on August 23, 2021, a full bench of the High Court, Western Cape Division, held that there had been an “unreasonable exercise of the discretion” by the South African Revenue Service (Sars) in considering a taxpayer’s grounds for requesting a remittance of a penalty of R1 064 607.69, which had been levied for the late payment of employee pay-as-you-earn (PAYE) tax. Costs were awarded against Sars.

The taxpayer, Peri Formwork Scaffolding Engineering (Pty) Ltd, paid the PAYE collected of R10 648 340.93 over to Sars on Monday, January 8, 2018, when the payment was ostensibly due on Saturday, January 6, 2018. In terms of the Tax Administration Act, the payment should have been made on the Friday.

The taxpayer requested the remittance of the penalty. Sars rejected this, as well as the taxpayer’s subsequent appeal. The taxpayer lost the matter in the Tax Court, and then appealed to the High Court.

The right to be heard

The audi alteram partem rule, which stands for ‘hear the other side’, is a fundamental legal principle.

This is enshrined in the Constitution of South Africa, which provides that all administrative action must be lawful, reasonable and procedurally fair.

The Promotion of Administrative Justice Act sets out the duties of administrators regarding procedural fairness, including that an administrator shouldn’t make a decision that adversely affects someone without consulting them first, and that the decision must be free from any impartiality, bias or prejudice.

A taxpayer must be able to put its case forward, which requires Sars to hear it, and to carefully consider it.

In other words, Sars must apply its mind to the facts, free from any impartiality, bias or prejudice.

Sars was required to consider the taxpayer’s reasons that were put to it in requesting a remittance of the penalty, and was required to weigh these up and apply its mind to whether these constituted reasonable grounds to waive the penalty.

This was the taxpayer’s first incidence of non-compliance, and on realising that it was short of cash, immediately took steps to remedy the situation. In the end, the taxpayer was late by only two days.

Did Sars consider the taxpayer’s grounds with bias and prejudice? Was Sars’s behaviour driven by the fact that this was close to the end of the financial year; was its behaviour driven by the need to collect revenue?

Read: Sars puts through a sneaky change

High Court

Taxpayer’s arguments

The taxpayer argued:

  • That it had experienced cash flow problems. The taxpayer’s bookkeeper was expecting payments from debtors in early January, which did not materialise. The PAYE was due and payable to Sars within seven days after the end of December 2017.
  • That it immediately took steps to raise the funds, and managed to raise in excess of R5 million. The weekend delayed the receipt of funds into the taxpayer’s bank account to the Monday, at which point the taxpayer immediately paid Sars.
  • That its method in calculating the number of days in which payment to Sars should be made, established that payment was only due on January 8.

Sars’s arguments

Sars dropped the Tax Court’s reference to a provision in the Fourth Schedule to the Income Tax Act which had been repealed in 2011, but which led to the Tax Court’s finding that a taxpayer had a fiduciary duty to Sars in collecting the PAYE and paying this over to Sars.

In the High Court, Sars submitted that Paragraph 2(1) of the Fourth Schedule establishes a “relationship between Sars and the various taxpayers who happen to be employers”.

For the benefit of understanding, I briefly summarise this paragraph, which provides that every employer who is a resident, and who pays or becomes liable to pay employees’ tax, must pay the amount so deducted or withheld to the commissioner of Sars within seven days after the end of the month during which the amount was deducted or withheld.

Sars deduced that this led to a relationship between Sars and the taxpayer, on the basis that the taxpayer must pay over the employees’ tax withheld to Sars.

Sars then expanded on this relationship, and submitted to the High Court that the relationship between the taxpayer and Sars is “akin to a fiduciary relationship in that the taxpayer is required to act for the benefit of Sars”.

In support of its contention, Sars then relied on the definition of ‘fiduciary’ in Black’s Law Dictionary.

It is somewhat surprising that Sars resorted to a law dictionary for a definition of fiduciary, as a fiduciary is amply covered in our case law, particularly case law pertaining to company, trust and labour law. However, Sars would still have had to demonstrate how this established a fiduciary relationship between the taxpayer to Sars.

Read: Tax Ombud launches #TaxpayersRightsMatter campaign

Sars argued that the taxpayer had failed in its fiduciary duty, which required the taxpayer to “observe the highest degree of care” in relation to the PAYE deducted, insulate this amount, not mix it with other business income, and not subject this money to “risks associated with non-payments by third parties”. Further, Sars contended that the taxpayer shouldn’t have to borrow money from third parties to pay Sars.

High Court findings

Calculation of the days

The High Court ruled against the taxpayer’s arguments that it had paid Sars in time, stating that the rules set under the Tax Administration Act are clear, and that if the last day of a period in which the taxpayer is meant to make payment falls on a Saturday, Sunday or public holiday, the payment must be done on the last business day before such Saturday, Sunday or public holiday.

Fiduciary relationship between the taxpayer and Sars?

The High Court disagreed with Sars’s contention that there was a fiduciary relationship between the taxpayer and Sars, opining that there have been “various distinctions between the accountability of a trustee to his beneficiary and the accountability of a debtor to his unsecured creditor”.

The High Court referred to the 2016 judgment of Grayston Technology Investment and Another v S, where the full bench was of the view that “Grayston stood in the shoes of an agent in respect of either a statutory or civil law obligation of debtor and creditor, pursuant to which relationship it attracted an obligation to pay over in specie to Sars or to account for the money actually received or its proceeds”.

The High Court clarified that the taxpayer was not precluded from utilising the PAYE money or obliging it to be ring-fenced.

Did the taxpayer have reasonable grounds for the remittance of the penalty?

The High Court found that:

  • The taxpayer had a clean record with Sars and this was the first instance of non-compliance.
  • When the taxpayer realised that it would be short of funds it immediately took steps to rectify this. The process of the payment of the additional funds raised by the taxpayer occurred over the weekend, and was therefore delayed.
  • The taxpayer therefore had reasonable grounds for the penalty imposed to be remitted.

The court held that the taxpayer’s appeal must succeed, and the penalty be remitted.

Punish those who are outside the system

A penalty should be imposed where a taxpayer has not only abused the tax system, but does so consistently.

A law abiding taxpayer should not be dealt with so harshly where it missed the deadline for a payment for the first time, and where it could provide reasonable grounds for doing so. It appears that the taxpayer’s grounds for the remittance of the penalty were not considered.

Read: Tax Ombud holding Sars to account for actions of questionable legality

Unfortunately, South Africans have now been exposed to three years of state capture revelations at the Zondo Commission of Inquiry.

There have been accounts of many criminals who have garnered hundreds of millions out of their corrupt activities, pay no tax, run business that are not registered for value-added tax or income tax, have stored their millions in trusts that don’t pay tax, and are still walking free.

This harsh treatment of a compliant taxpayer who made an error in calculating its cash flow, leaves a bad taste.



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SARS seems to have difficulty in applying their minds properly. One wonders if SARS is only targeting ‘soft targets’?

Soft targets for sure. I hear that the ruling party has not paid PAYE over to SARS. And are not in a position to do what is legally required, as they are short of cash. One wonders if the tax authorities will act in this case.

Of course SARS won’t act against the ANC, neither will the IEC

The ANC with their arrogance thinks South Africa is their playing ground and we the tax payers must keep their wheels oiled

Just look at what Zuma’s connection did! One favour deserves another..Milk Shake, Fraser and Shower Head teeing off at 09h00 tomorrow
They take us for fools

Incidentally, anyone wearing Orange overalls yet after the Billion Rand Zondo Commission?

Just another cow that was milked which will also just fade into an abyss if nothingness

SARS works very well for:
Mr. Zuma,
VBS looters,
Eskom tender fraudsters,
Transnet tender fraudsters,
corrupt politicians,
Ex presidents with mansions in Dubai
and their family members with bank accounts in Dubai and Pakistan.

I have been audited four times in the last five years and I have never been dishonest with SARS in the last 31 years.

Seems that law abiding and honest citizens are treated like thieves by SARS.

@Kieswetter – U sound desperate to go after Taxpayers….who actually do pay?

Maybe check up on your ANC cronies for a change? and see how many actually really bother to pay taxes?

South Africans have been exposed to state capture and @Kieswetter has done absolutely nothing about it!

Kieswetter was not in charge in 2018 when this happened in 2018. Tom was.

I dont care if Kieswetter was in charge or not.

Kieswetter is definitely not making any improvements currently…
he is still protecting his ANC friends!

Do you see any intervention by SARS / Kieswetter for STATE CAPTURE?

Wow the lengths and mental gymnastics people will go to defend themselves when they are proved to be clueless.

Kieswetter was not in charge when this all occurred back in 2018.

It makes no difference if Kieswetter was in charge or not – as an entity SARS has an obligation to pursue legal action against no paying taxpayers irrespective of who they are

You are missing the point. He is in charge now and could have reviewed current and pending legal cases above a certain value and overturned, based on merit. SARS tactics have not changed under his watch. They are still picking low hanging fruit in the meadow, because the ones at the top of the hill are just too much work.

Tax compliance will remain under strain if different rules are applied to different parties.

In some businesses, where cash flow is not constant, like property and others, it is virtually impossible to predict within a 90% accuracy income.
And as we have seen with Covid, even with businesses with high levels of cash flow preductality, things can still go wrong.

Therefore, SARS is being unreasonable on the most compliant bussisses and yet with others, such as the taxi industry, which is the most predictable, they do nothing to get them to pay tax.

The more hard arsed tactics SARS employs , the more resistance it will encounter – especially considering that it does nothing to collect outstanding taxes from crooked political big wigs and crooked political parties ( ANC ).

I have difficulty agreeing with you. After 27 years of wholesale fraud, theft , cadre employment, destruction of SOEs, failed security, education and medical most dumb taxpayers simply accept being stolen into insolvency and pay what is due either through PAYE, VAT or provisional taxes.

Despite years of the Zondo commission not one person has been made to repay money or been charged, the former number one is released by his fellow gangster buddy and the judiciary is a captured laughing stock of mediocre cadre employment. Unemployment is the worlds highest, maths marks the worlds lowest! Growth is pedestrian and GDP per capita falling due to the whole sale unprosecuted statutory rape of minors. A truly sick and failed society


I am under no illusions that the sheep will remain sheep and donate their hair annually. Yet, the resistance of some will happen and not be on the surface. The underground part of the economy will grow. And with regards
to : flee the failed state – did this 7 years ago. Logical conclusion if one does not wish to be in frog boilers pot.

SARS = Stubborn African Revenue Stupidity

Like the anc SARS is slowly but surly turning into an enemy of the people.

Exactly. Encouraging more tax non compliant. Cash is king and always will be.

Difference between Ed Kieswetter and Tom Moyane?

At least Tom Moyane did not pretend to be virtuous, impartial and fair.

Kieswetter was not in charge in 2017/2018 when this happened. Tom still was.

SARS should not be focused on this, it was a mistake that was quickly attended. I’m very disappointed simply because I expect better from them. Someone should be moved down for a bit. Unnecessary.

Not a BEE company I’m sure ?

All symptoms of an organ of state with extraordinary powers, and low levels of competence.

If SARS expects companies to act as a fiduciary for them, they should pay the companies a fee for services rendered. The penalty regime is a big scam

The playing field should be level. SARS should be forced to pay interest on over collection of taxes when refunding taxpayers. Perhaps they will then stop auditing every honest taxpayer.

The author poses several questions about SARS’s motives. Do these extend to the tax court judge who found in SARS’s favour?

“The lack of funds for payment of the declared amount could have been reasonably avoided, given the exercise of reasonable foresight, due diligence and proper regard for the fact that tax was due on 5 January 2018. The appellant was also unable to prove that reasonable steps, other than reliance on the cash-flow forecast, were taken before the payment deadline to discharge the PAYE liability. I am therefore satisfied that the appellant had failed to establish reasonable grounds for the late payment of employees’ tax.”

In the final analysis SARS may have wrong but then so was another independent arbiter, so the error cannot have been as unreasonable as the article implies.

I love the hundreds of thousands of Rands they spend on advertising!!! Like they have competition .

This is sooooo funny….

ANC voter base cannot even read…. SARS means nothing to them…doubt they have even seen a tax form

They do have competition. It is called “apathy” and “not paying”. This lack of obvious insight is why you have a cubicle and are not in charge of anything important.

Mr Kieswetter I assume. Good to meet you sir. Now please go back to the office and start collecting tax and penalties from all the corrupt tenderpreneurs in the ANC and EFF gangster coalition. And the there is the small matter of the fringe benefit of R203 million rand Jacob Zuma received that must be taxed. And those fraudulent travel claims by those MP s. Please don’t forget those. Now once you have attended to every exposure of corruption that you get through all these wisleblowers, and only then can we start talking about increased tax collection from those who do pay tax. We are all equal before the law, but you seem to have forgotten that.

Dear Bloem
Please stop insulting fellow community members.

In about 2009 a tax client had similar a few days late penalties. SARS waived the penalties based on:
Taxpayer did not intentionally pay late and always intended paying
There were many repeat offices and they were all waived.
Dealings were with the large business center in Sunninghill.

A first offense? SARS SOPs states that first offences must be waived. How did this end up being disallowed and in court? Most probably incompetence.

SARS isn’t interested in real tax avoidance. Just nailing easy targets.

I’ve had the misfortune of running 3 small businesses in this country and they’re one of the biggest headaches.

You file all documents diligently, comply with the law, spend half your time collecting VAT and deducting payroll taxes…
And the get audited year in and year out for your troubles.

In SA, it only pays to be a criminal ala Zuma and co.

S-ARSE- At Your (Dis)service.

“The audi alteram partem rule, which stands for ‘hear the other side’, is a fundamental legal principle”

Dear reader, file the previous statement. You will need it when AARTO wants to fine you without giving you an opportunity to object.

Having read about this very quick attack on a company that was a few days late in paying over the PAYE collected, I would like SARS to confirm that they do indeed collect the monthly PAYE deducted from employees based at Luthuli House? Otherwise, I expect to see similar monthly penalties being raised.

End of comments.




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