A High Court judgment has confirmed that once a lawful settlement agreement is signed, the South African Revenue Service is legally bound to its terms.
Judge Anthony Millar said the ruling reinforces that taxpayers who negotiate and comply with agreed outcomes are entitled to rely on them, and administrative glitches or internal processes cannot be invoked to alter a binding agreement.
The Court overturned an earlier decision and held that SARS was bound to a 2018 settlement agreement concluded with Inhlakanipho Consultants (Pty) Ltd. The agreement finalised the company’s VAT liability for two periods and recorded a fixed liability of R5.91 million, which the taxpayer paid within the stipulated timeframe.
SARS’s reversal triggers litigation
Despite the agreement’s finality and Inhlakanipho’s full compliance, SARS later adopted the position that payment did not extinguish the debt. It allocated the taxpayer’s payment according to section 166 of the Tax Administration Act (TAA), which prioritises older debts and interest charges.
This approach effectively revived amounts that the settlement agreement had resolved, prompting the taxpayer to seek declaratory and consequential relief.
SARS argued that its internal accounting systems could not allocate payments in the manner contemplated by the settlement and that compliance would require a substantial system overhaul.
The Court a quo accepted SARS’s position and dismissed the application.
High Court: SARS must honour what it signed
On appeal, Judge Millar rejected SARS’s claim of impossibility, finding that the revenue authority had provided no evidence demonstrating that its systems could not implement the terms of the agreement.
He held that internal processes and convenience cannot override a binding agreement lawfully concluded under the TAA. Judge Millar emphasised the force of section 148, which states that a settlement agreement represents the final agreed position between the parties and is binding unless fraud, material nondisclosure, or misrepresentation is proven.
According to the judgment, SARS entered the settlement knowing its statutory obligations, its internal systems, and the implications of section 148. Judge Millar described SARS’s reliance on section 166 as “contrived” and “self-serving”, stating that by agreeing to the fixed liability, SARS had effectively waived its right to apply the default payment-allocation rules to the periods covered by the settlement.
He further warned that allowing SARS to retreat from settlement terms based on administrative inconvenience would undermine the statutory dispute-resolution framework and discourage taxpayers from engaging in settlement processes.
Finality matters
Judge Millar confirmed that the agreement fixed the taxpayer’s liability and that only interest, calculable for a determinable period, remained to be accounted for. The Court ordered SARS to render an interest account and participate in an account debate within the stipulated timelines.
In the judgment’s reasoning, taxpayers who enter settlement agreements under the TAA are entitled to assurance that SARS will honour the terms it negotiates. Judge Millar also signalled that courts will be slow to accept administrative limitations as justification for deviating from binding commitments.
Professional representation matters
André Daniels, head of Tax Controversy and Dispute Resolution at Tax Consulting SA, and senior tax attorney Richan Schwellnus said the ruling highlights that the practical stakes in tax disputes extend well beyond the numbers.
“Even when a taxpayer acts in full compliance, the interpretation and enforcement of settlement terms can become highly complex and adversarial with SARS.”
They emphasised that expert representation is essential throughout the dispute-resolution process, including objections, appeals, and the drafting or enforcement of settlement agreements. In their view, a seasoned practitioner is not only able to negotiate and structure binding settlements, but also to ensure that SARS is held to the terms of those agreements where necessary.
“The Inhlakanipho case illustrates that without specialist support, a taxpayer may struggle to challenge shifting positions or procedural irregularities, even years after an agreement has been concluded with SARS.”
According to Daniels and Schwellnus, the Court’s decision provides welcome certainty for taxpayers and reaffirms that SARS is bound by the same principles of fairness and contractual accountability as any other party.
Read the full judgment here.
