In a ruling described as a “significant outcome” for taxpayers, the High Court in Pretoria halted the operation of the “pay now, argue later” rule in a disputed R531-million tax assessment – and ordered the Commissioner of the South African Revenue Service to pay the costs.
The case arose after SARS issued additional assessments against Mario Jose Andrade Ferreria for the 2009 to 2021 tax years. Although he disputed liability and lodged an appeal in the Tax Court, section 164 of the Tax Administration Act requires taxpayers to pay first and argue later, unless SARS agrees to suspend payment.
Ferreria asked for that suspension. SARS refused – twice.
The High Court was not asked to decide whether the R531m was lawfully owed. The question was narrower and more pointed: had SARS exercised its discretion lawfully, rationally, and fairly when it refused to suspend payment pending the Tax Court appeal?
Acting Judge Snyman Dyke held that, in the second refusal at least, it had not.
A fight over security
After the assessments were raised, Ferreria offered security to back his request for suspension. His initial proposals – including racehorses and later a claim linked to Siyangena Technologies – failed to satisfy SARS.
The dispute sharpened when he offered something far more substantial: his 80% shareholding in TMM Holdings (Pty) Ltd. The shares were valued at R1.25 billion using a discounted cash flow method supported by audited financial statements. In its answering affidavit, SARS conceded the shareholding was worth more than R1bn.
That concession proved pivotal.
On any arithmetic, 80% of a R1.25bn holding amounted to between R800m and R1bn – “almost double the disputed debt”, as the Court later observed. Yet SARS maintained that the security was inadequate, that recovery of the tax could be jeopardised, and that assets might be dissipated.
Ferreria abandoned his challenge to the first refusal and targeted the second decision – taken after the TMM shares were placed on the table.
He argued that once the shares were pledged, SARS would hold a real right of security over them. He would not be able to dispose of them. There was, he contended, no realistic risk to the fiscus. The refusal, he said, rested on incorrect facts, ignored material considerations, and was irrational.
SARS countered that the “pay now, argue later” rule is a cornerstone of tax administration, previously upheld as constitutional. It argued Ferreria had not shown irreparable financial harm, there were concerns about his compliance history, and the Commissioner was obliged to protect revenue collection. In its view, the security offered did not sufficiently neutralise the risk.
The Court’s focus: lawfulness, not correctness
Judge Dyke emphasised that a review court does not “second-guess” administrative decisions. Where a statute confers a discretion, the weight attached to particular factors lies with the functionary – provided the decision is made in good faith and is rationally connected to its purpose.
On the first refusal, he found little to criticise. SARS had considered the statutory factors and declined the request.
The second decision, however, was another matter.
The judge found that SARS had taken irrelevant considerations into account and ignored highly relevant ones. Central among them was the value of the pledged shares. Given SARS’s admission that the shareholding exceeded R1bn, he held that the security “cannot be considered as inadequate.”
He said he was “unable to understand” the assertion that recovery of the tax was in jeopardy. If SARS believed the pledged shares posed a risk, it was incumbent upon it to explain why. No such explanation appeared in the correspondence or the court papers.
The contention that assets might be dissipated was equally unconvincing. A pledge, he explained, creates a limited real right of security upon delivery. Once delivered, the shares could not be dissipated by the taxpayer. With security worth nearly twice the debt in SARS’s possession, it was “difficult to cognise” how the fiscus faced prejudice.
At most, the Court accepted, SARS might experience a temporary cash-flow impact.
By contrast, the prejudice to the taxpayer was stark. To comply with the rule, he would have had to liquidate assets at “fire sale” prices, suffering substantial and irrecoverable losses. Even then, the sale of properties and vehicles would not necessarily extinguish the debt. Execution could compromise his business and his ability to maintain his family. If he later succeeded in the Tax Court, that victory would be “pyrrhic”.
Judge Dyke concluded that severe financial prejudice and irreparable harm had been established – and SARS had failed properly to consider them.
A troubling procedural gap
The Court was also concerned about what happened inside SARS.
Ferreria alleged that the Independent Debt Committee had not been informed of the TMM share offer when it made its recommendation. SARS denied this – but provided no detailed factual rebuttal.
Relying on established authority, the judge said a “bare denial” is insufficient when material allegations are made. On the papers before him, he accepted that the committee had not been informed of the R1bn share offer.
If that was so, he reasoned, the decision could not rationally have been based on a proper assessment of the adequacy of the security. Alternatively, if the committee had been aware of the dramatic increase in the book value of the shares – from R400 in 2022 to R1.25bn in 2023 – the taxpayer had not been given an opportunity to explain or substantiate it. No concerns were raised with him at the time.
Either way, the process was procedurally unfair.
Ultimately, Judge Dyke held that the second refusal was based on incorrect facts and was “so unreasonable that no reasonable person would have made it.” It was not rationally connected to its purpose and fell to be set aside.
The order – and its implications
The Court reviewed and set aside the Commissioner’s second decision. In its place, it substituted a new one: Ferreria’s obligation to pay the disputed tax, and SARS’s right to enforce it, were suspended pending the outcome of the Tax Court proceedings – on condition that he deliver a pledge of his 80% TMM shareholding within five days.
SARS was ordered to pay the costs, including of senior and junior counsel.
The South African Institute of Taxation welcomed the ruling. Its head of technical practitioner relations and support, Gert van Heerden, said the decision strengthened fair tax administration and underscored that SARS must be able to show that its decisions match the facts. The courts, he noted, will intervene where they do not.
The judgment does not dismantle the “pay now, argue later” rule. But it sends a clear message: the Commissioner’s discretion is not immune from scrutiny. Where security is over-collateralised, risks are asserted without evidence, and material facts are ignored, the courts are prepared to step in.
For taxpayers facing crushing assessments, this is no small development.
Read the full judgment here.
