Taxpayers Suffer Unnecessary Stress Due to Unjust Debt Collection Practices

Recent actions taken by the Office of the Tax Ombud (OTO) have highlighted the effects of ineffective tax administration and procedural holdups on taxpayers.

The South African Revenue Service (Sars) faced criticism for delays and the poor management of its own dispute and objection procedures.

Read:

Timekeeping seems to be Sars’s Achilles’ heel

In one case, the agency’s actions resulted in a taxpayer facing debt collection procedures despite having their objection resolved in their favor, leading to “unnecessary distress”.

This situation arose from an inaccurately pre-filled tax return in 2022. The taxpayer identified additional income reflected on the return that should not have been there, but only after submitting the return.

Consequently, an assessment of nearly R49,000 was issued. The taxpayer recalibrated his liability and remitted the correct amount before filing an objection and seeking a suspension of payment for the disputed sum of just over R12,000.

‘Administrative oversight’

Sars reviewed the objection and accepted it; however, this did not trigger an automatic cancellation of the suspension of payment request that should have led to a revised assessment.

Instead, third-party debt collectors were appointed despite the taxpayer’s successful objection.

“Sars was at fault for failing to issue a reduced assessment after allowing the taxpayer’s objection,” concluded the OTO.

This lapse meant that the appointment of third-party collectors was “unjustified and caused unnecessary distress to the taxpayer”.

A third-party appointment is a legal mechanism utilized by Sars to recoup outstanding tax liabilities directly from an external party that possesses or controls the taxpayer’s assets or income.

For instance, Sars might authorize an employer to withhold an amount from the taxpayer’s salary or instruct a bank to release funds from the taxpayer’s account to remit to Sars.

Read: Sars knows what’s happening in your bank account

“This procedure can lead to serious financial repercussions, particularly when Sars enforces it mistakenly.”

The OTO directed Sars to immediately halt all debt collection activities and retract the third-party appointment. It was also instructed to process the reduced assessment “without further delay”.

Impact

This case underscores the necessity for efficiency in tax administration and the effects of procedural delays on taxpayers.

The taxpayer acted swiftly and appropriately by filing an objection and requesting a suspension of payment.

“However, Sars’s failure to issue a reduced assessment led to avoidable debt collection actions,” the OTO determined.

Nico Theron, a dispute specialist and founder of Unicus Tax Specialists, noted that it is common for Sars to commence collection actions regarding disputed tax debts even when prohibited from doing so.

It often threatens collection when it has no legal basis to do so, compelling taxpayers to pursue legal remedies.

“Although legal notices often resolve the issue quickly, it is regrettable that taxpayers must resort to legal processes to defend their rights,” Theron comments.

“As someone who engages with Sars on disputes daily, I can confirm that during the last weeks of March 2025 [Sars’s year-end], we issued numerous legal notices challenging Sars’s unlawful rejection of suspension of payment requests or threats of illegitimate collections.”

While it is not commonplace for Sars to initiate debt collection efforts after an objection has been granted, Theron believes the underlying issue lies in Sars’s failure to issue a reduced assessment promptly after approving the objection.

“This issue arises primarily because there is no stipulated timeframe within which Sars must issue a reduced assessment after an objection is accepted,” he emphasizes.

Prevent unjust debt recovery

The OTO urged Sars to ensure timely processing of reduced assessments following resolved objections and to utilize third-party appointments “judiciously”.

“Sars must reinforce its internal systems to guarantee that once a taxpayer’s objection is concluded favorably, the necessary adjustments are made promptly to avert unwarranted debt recovery initiatives.”

Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC, points out that the challenge lies in determining the most efficient path to rectify erroneous assessments without getting mired in protracted administrative procedures like disputes or payment suspensions.

“Today’s taxpayers prefer to resolve issues quickly and move on, rather than spending funds on disputes with Sars about accountability,” she states.

“Ideally, Sars would learn from these errors and enhance their administration through AI [artificial intelligence], machine learning, or simply improved management.”

Verify assessments

Taxpayers should have a comprehensive understanding of the Tax Administration Act, along with Sars’s policies and procedures. This knowledge will aid in effectively managing verifications or audits or in regularizing a tax position.

Read:

Sars must pay up for being ‘unreasonable’

“It is essential to verify the accuracy of the assessment and know the subsequent steps, such as dispute resolution options if the taxpayer disagrees with the assessment,” Rossato advises.

Following the timelines and requirements set by the act is likely to yield a favorable outcome if valid reasons exist.

“While Sars is working to enhance its AI capabilities, much remains to be done in improving systems and accountability,” she adds.

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