Third-party (agent) appointments issued under section 179 create untold conflict amongst taxpayers and third parties alike, pitting employer against employee and bank against client where the only winner is SARS. By Tarryn Atkinson
It’s not really new and we can’t even blame it on the controversial Tax Administration Act1 (TAA). It could, however, be said that the advent of the TAA reminded SARS of a certain tax collection power that has been contained in tax legislation for many years, commonly referred to as the ‘agent appointment’.
Section 99 of the Income Tax Act2 (pre-TAA) provided a mechanism whereby SARS could ‘attach’ salaries, funds held in bank accounts and even debts owed to the taxpayer by appointing a third party to collect the debt for them without any court order or other judicial oversight. It was a simple provision and in practice, these were not issued frequently and were mostly used by SARS where there was a risk of dissipation of assets.
The inclusion of the agent appointment provision in the TAA has awoken SARS to the wide powers conferred on them. The widespread use of agent appointments against employers, banks and taxpayer debtors to collect tax debts clearly indicated a change in policy from SARS. These powers were no longer left on the shelf until all other collection methods had been exhausted and now became the weapon of choice.
The revised section 993 as now contained in section 179 of the TAA looks vastly different. This was no ‘cut and paste’ exercise and it comes with teeth – not the sharp needle-like teeth of a puppy but the ragged teeth of a great white shark. Failure to action such an appointment will result in the ‘agent’ becoming liable for the tax debt4 – that is, the employer liable for all its non-compliant employees, the bank liable for all its non-compliant clients, debtors liable for their non-compliant creditors, etc. The third-party agents are therefore obligated to act.
There are essentially three main parties that get appointed as agents under these provisions:
- Employers – utilising the IRP5 data submitted bi-annually to SARS
- Financial service providers – utilising the IT3 data submitted bi-annually to SARS
- Debtors – utilising the information gathering provisions under chapter 5 of the TAA
Debtor appointments are more considered and ad hoc in nature requiring significant legwork first to identify the debtor–creditor relationship and identify the payments that need to be redirected to SARS.
The mass imposition of the new fixed amount non-compliance penalties under section 211 of the TAA created a massive debt pool for SARS and a mechanism was needed to recover these debts. The first wave of agent appointments hit employers and financial institutions like a tsunami.
Employers and financial service providers scurried to prepare processes and systems to deal with the sheer volumes of agent appointments. SARS then commenced issuing employee agent appointments via eFiling, automating the employer’s process for them. There was nowhere to hide and affordability was not even a consideration at the onset. The employers could not, of their accord, reduce the appointment or create payment terms for their employees. This created enormous practical difficulties for employers and they had to constantly refer employees back to SARS to agree on repayment terms and to request SARS to amend the instruction accordingly.
The barrage of queries that employers and financial service providers have to face on a daily basis once they action the agent appointments is not for the faint-hearted. The risk to the third parties appointed as agents is however too great should they not action the instruction. However, owing to the SARS secrecy provisions under chapter 6 of the TAA they are not able to explain or inform the employee or the client what the appointment relates to.
The impact on taxpayers is more severe, however: salaries reduced, bank accounts cleared, and prior to an amendment made in 2015, without any due notice being required. Despite many protestations that the agent appointment was not being used as the first choice weapon, many employers and financial service providers can attest to the opposite. The spike of appointments during the SARS final collection drive at year end sharply contradicted the utterances of the revenue officials.
Thankfully the legislation now provides for a final demand for payment to be delivered to the taxpayer at least 10 business days before an appointment is issued. This has seen the numbers of agent appointments reduce and stabilise over the past year. The changes also allow for the taxpayer to approach SARS prior to the appointment being issued to negotiate repayment options, thereby negating the need for the appointment.
Advisors and tax practitioners should be aware that while their first instinct is to contact the financial service provider or to advise their clients to contact the employer, the agents themselves have little information and can do very little to help the affected taxpayer. The agents will not even know which year the amount relates to, so abusing or threatening them is like shooting the messenger. Only SARS will have the information that the taxpayer needs in order to determine the next course of action.
What taxpayers can be comforted by is that most employers and financial service providers exercise extreme scrutiny over these instructions. If there anything procedurally wrong with the instruction, the surname is spelt incorrectly, one digit is out of place on the identity number, if the account number is unclear or doesn’t match the individual named or the identity number provided, the instructions are rejected and sent back to SARS.
Most financial service providers have, despite enormous pressure to automate this process, implemented manual processes and employed teams to manage the appointments to ensure that every ‘t’ is crossed and every ‘i’ is dotted before they touch their clients’ money. While it would ease their administration, the risk of actioning an invalid appointment or negatively affecting a compliant client is too great and until such time as there are consistency and accuracy in the instructions, it remains a largely manual exercise.
It must be noted that the legality of agent appointments under the old Income Tax Act was tested in the courts in a number of cases and upheld. However, given the vast differences in the new section 179 it remains to be seen if the new provisions will stand legal or even constitutional scrutiny due to the invasiveness and widespread use of the power. Given the recent Constitutional Court ruling on garnishees5 regarding the lack of judicial oversight in such matters, one has to wonder if the days of the agent appointment in its current form are numbered.
1 Act 28 of 2011.
2 Act 58 of 1962.
3 Income Tax Act 58 of 1962.
4 Section 179(3) of the TAA.
5 University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others; Association of Debt Recovery Agents NPC v University of Stellenbosch Legal Aid Clinic and Others; Mavava Trading 279 (Pty) Ltd and Others v University of Stellenbosch Legal Aid Clinic and Others (CCT127/15)  ZACC 32 (13 September 2016).
AUTHOR |Tarryn Atkinson CA(SA) BCom, LLB, BCom (Hons) is an admitted attorney and is the Operational Head of Employees’ Tax and Benefits for FirstRand Bank Limited