Taxpayer M v CSARS (IT 45585)

Taxpayer M submitted the original employer reconciliation declaration EMP501, which is a “self-assessment”, for the period 1 September 2017 to 28 February 2018, with the incorrect employment tax incentive (“ETI”) amount. Taxpayer M objected to its self-assessment and submitted a corrected EMP501 to SARS, with a larger ETI total. Taxpayer M requested a refund from SARS for the understated amount and requested a reduced assessment of employees’ tax payable for the relevant period in terms of section 93(1)(d) of the Tax Administration Act (“TAA”). SARS disallowed the objection and refused the reduced assessment. Taxpayer M accordingly appealed against SARS’ decision.

Facts

Taxpayer M was eligible to receive the ETI, instituted in terms of section 2(1) of the Employment Tax Incentive Act (“ETIA”). For each month within a six month ETI tax period, being 1 September 2017 to 28 February 2018 (“the relevant period”), Taxpayer M was eligible to receive the ETI in respect of all its qualifying employees.

There was no dispute between the parties that monthly returns in the form of monthly employer declarations (“EMP201”) were submitted timeously by Taxpayer M during the relevant period.

For the relevant period, an ETI of R3 757 633 was available to Taxpayer M. In the return, being an employer reconciliation declaration EMP501 (“the original EMP501”) submitted by Taxpayer M, only R 2 344 503 of its available ETI was however claimed as a reduction of PAYE debt to SARS.

Taxpayer M objected to its self-assessment and submitted a revised EMP501 (“the revised EMP501”), in order to correct the determination of its tax liability or refund as contained in the original EMP501. In the revised EMP501, Taxpayer M included the understated amount of R1 413 130 and requested SARS to refund that amount. Taxpayer M further requested a reduced assessment of the employees’ tax payable by it for the relevant period and tendered to submit revised monthly employer declarations (“EMP201”), if required.

SARS disallowed the objection and refused the reduced assessment.

Issues

Taxpayer M is claiming the understated ETI in the appeal, however the amount has not been verified, as the underlying amounts and figures or the manner in which it was computed was not admitted.

The issues which had to be considered by the Tax Court are:

(i)               the proper application of the relevant legal principles and mechanisms relating to the payment of the ETI;

(ii)              the proper construction of the relevant statutory provisions that inform such principles and the recovery mechanisms to claim payment of the ETI;

(iii)            whether or not Taxpayer M is entitled to claim and receive payment of the agreed quantum of ETI.

Finding

The Tax Court turned to the relevant principals contained in the case Cool Ideas 1186CC v Hubbard and Another, which expressed that the words in a statute must be given their ordinary grammatical meaning, unless to do so would result in an absurdity. Important riders to this general principle include, inter alia, that statutory provisions should always be interpreted purposively.

Thus in relation to tax law, the ordinary principles pertaining to the interpretation of statutes apply.

The Tax Court considered the applicable statutory framework, being the ETIA, section 5(1)(c) of the Income Tax Act (“ITA”) and Part II of the Fourth Schedule, and the purpose for which it was enacted. Paragraph 2(1) of Part 11 empowers and obliges every employer to deduct and withhold employees’ tax from the remuneration payable to the employee. Paragraph 14(1)(b) requires that every employer maintain a record in respect of each employee showing the amount of employees’ tax deducted or withheld. Paragraph 14(2)(b) obligates every employer to submit a return to SARS, being the monthly employer declaration (EMP201) and the amount deducted or withheld must be paid over within seven days after the end of the month during which it was withheld or deducted unless the employer cases to be an employer before the end of that month. Paragraph 14(3) obliges every employer to render a reconciliation return by a date as prescribed by SARS by notice in the Gazette (the EMP501) subject to certain conditions where an employer ceases to be an employer or ceases to conduct business.

It was noted by the court that the purpose of the ETIA was “to support employment growth in the private sector by creating an employment tax incentive to eligible employers in respect of eligible employees, especially young people, to curb the high unemployment rate in the country.”

The ETI programme was initially planned for a three year period ending 31 December 2016, however this was extended until 28 February 2019.

The Tax Court found that Taxpayer M’s claim is not based on an entitlement to roll forward the unclaimed amount beyond 28 February 2018 or to benefit from that amount in a period after 28 February 2018. Instead Taxpayer M is claiming to have an unclaimed amount at the end of the relevant period (i.e. on 28 February 2018), which is treated as an excess amount at that date, and to receive the benefit of that deemed excess amount for that period.

The appeal was upheld and Taxpayer M’s EMP501 assessment dated 31 May 2019 is altered to recognize the entitlement of the understated amount.

Find a copy of the court case here.

04/04/2022