Taxpayers often claim that the South African Revenue Service (SARS) delays the payment of refunds. In light of this observation, the judgment in Top Watch (Pty) Ltd v The Commissioner of the South African Revenue Service is particularly notable.(1)

The judgment dealt with the pertinent and relevant issue of whether the respondent, SARS, was legally justified in refusing to pay certain value added tax (VAT) refunds to the applicant (the taxpayer) on the grounds that the he owed an income tax debt, which SARS alleged was due and payable.


The taxpayer claimed that VAT refunds were due to him in respect of the February 2014, July 2014, August 2014 and July 2017 VAT periods. However, in respect of the July 2017 VAT period, SARS alleged that no refund was due; instead, it held that the taxpayer owed an amount. Although SARS conceded that the VAT refunds for the February 2014, July 2014 and August 2014 VAT periods were due and payable, it refused to authorise payment of the refunds.

Pretorius, a legal specialist employed by SARS, deposed to an affidavit in which he alleged that the taxpayer had been assessed for an income tax liability of approximately R1.76 million, which far exceeded the refund amounts due to the taxpayer. To substantiate this allegation, Pretorius relied on the supporting affidavit of Oberholzer, a SARS operational specialist, who stated that he had:

  • audited the taxpayer between 25 November 2016 and 8 March 2018 for income tax in respect of the March 2012 to February 2015 period; and
  • concluded that the taxpayer owed approximately R1.76 million.

To substantiate this allegation, Oberholzer cited a document attached as POC1, which the court noted was almost illegible. During argument, the court was told that the document was an extract of SARS’s accounting data system of which the heading read “Assessed account – remittance data view”.


Based on the facts set out above, SARS contended that it had been legally correct to refuse to pay the VAT refunds, as the taxpayer’s income tax liability had been set-off against them. The taxpayer argued that SARS’s stance was wrong in law, but that its argument acknowledged that the VAT refunds were due and payable, as this was a pre-condition for set-off, with which the court agreed.

The court considered the provisions in the Tax Administration Act (28/2011) dealing with refunds. Sections 190(1) and (2) of the act state that SARS must pay a refund if:

  • a person is entitled to it under a tax act; and
  • the amount refundable is reflected in an assessment unless a verification, inspection or audit of the refund is being conducted under Chapter 5 of the Tax Administration Act.

Based on these provisions, the taxpayer argued that SARS must pay the VAT refunds and raised two arguments in this regard. First, it argued that the “verification, inspection or audit” referred to in Section 190(2) applies only to a refund itself and not to all aspects of a person’s tax affairs. Therefore, outstanding income tax debt cannot prevent payment of VAT refunds due to the taxpayer.

Second, the taxpayer argued that no tax debt was established on the papers. In this regard, the court referred to Section 191 of the Tax Administration Act, which states that if a taxpayer has an outstanding tax debt, an amount that is refundable under Section 190 must be “treated as a payment by the taxpayer that is recorded in the taxpayer’s account under Section 165, to the extent of the amount outstanding, and any remaining amount must be set off against any outstanding debt under the Customs and Excise Act”.

The taxpayer argued that the POC1 document was not an assessment and that only an assessment that has been communicated to a taxpayer is eligible for set-off. In this regard, the court considered Section 169(1) of the Tax Administration Act, which states that “an amount of tax due or payable in terms of a tax Act is a tax debt due to SARS”. It also considered various Supreme Court of Appeal judgments on what constitutes an ‘assessment’ and a ‘tax debt’. One of these judgments held that an amount of tax cannot be regarded as having become recoverable through judicial intervention until the taxpayer has been informed of the assessment.

The court held that set-off can take place only where:

  • there are debts between persons who have reciprocal debts, which are both due and payable; and
  • both debts have been liquidated.

As the alleged income tax liability was not captured in an assessment that had been communicated to the taxpayer, there was no proof that the income tax debt existed and, therefore, set-off could not take place.

The court concluded that SARS must pay the taxpayer’s claim for payment of the VAT refunds for the February 2014, June 2014 and August 2014 VAT periods, including interest on these amounts. The court also ordered SARS to pay the taxpayer’s costs.

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