South African taxpayers get a one-up on SARS

A recent court ruling has clarified when taxpayers can avoid old customs duty claims from the South African Revenue Service (SARS), giving businesses a stronger defence against late demands.

This is according to Shepstone & Wylie Partner Nalini Maharaj and Senior Associate Mona Appalsamy, who explained that the ruling has provided taxpayers with important clarity.

The ruling relates to section 44(11)(a) of the Customs and Excise Act, which has historically been a pain point for taxpayers.

This section provides that, subject to certain exceptions, there shall be no liability for any underpayment of customs duties after a period of two years from the date of acceptance of a bill of entry.

It applies where such underpayment was discovered as a result of, during the course of, or after an inspection.

The underpayment must also have occurred more than two years before the date on which the inspection commenced.

However, there is no limit on the period of liability where the underpayment resulted from fraud, misrepresentation, non-disclosure of any material facts, or any false declaration for purposes of the Customs Act.

Essentially, the section conveys that SARS can generally hold an importer liable for duties for a period of two years, either from the date of a bill of entry or from the commencement of an audit.

The general liability period may be extended beyond the two-year period in cases of fraud, misrepresentation, non-disclosure of material facts, or a false declaration.

Section 44(11)(a)’s prescription period in the Customs Act has historically been known to be a bit of a nuisance, Maharaj and Appalsamy explained.

With the seemingly broad powers granted to SARS officials, taxpayers have always been uncertain about any time-bar arguments to defend their position.

This issue has been further aggravated by a lack of clarity on both legal and policy fronts, Maharaj and Appalsamy said.

However, the court has provided some much-needed guidance in the 2023 case of NCP Alcohols v Commissioner for the South African Revenue Service.

The subsequent 2025 ruling in Woods Warehousing v Commissioner for the South African Revenue Service and Others also provided further guidance.

Long-awaited clarity for taxpayers

In the Woods judgment, the applicant challenged the commissioner’s claim for duty in respect of a letter of demand dated 27 September 2021.

On these facts, the goods were first imported on 13 August and 9 October 2019, and SARS commenced its investigation on 18 May 2021.

As such, the applicant argued that the two-year period lapsed on 12 August 2021 and 8 October 2021, respectively.

The court held that liability had not ceased because the investigation in this case commenced before the expiration of the two-year period.

The practical effect of the Woods judgment is that SARS may issue a letter of demand after the general two-year liability period has expired, provided the SARS audit, inspection, or investigation started within that two-year period.

Maharaj and Appalsamy explained that an audit is generally regarded as having commenced when SARS issues an audit notification to the taxpayer setting out the period and scope of the audit.

However, there may be some cases where SARS has not commenced its investigation before the expiration of the general two-year period.

When this happens, a taxpayer may have a defensible prescription argument against any intended customs duty and VAT liability that SARS seeks to impose.

Maharaj and Appalsamy urged taxpayers who receive a letter of demand from SARS to review the dates carefully before accepting liability. In particular, taxpayers should consider:

• The date on which the relevant bill of entry was accepted;
• The date on which SARS’ inspection, audit or investigation commenced; and
• The period and scope covered by any audit notification or letter of demand.

“These factors may assist a taxpayer in determining whether a prescription argument is available, whether SARS is entitled to pursue the alleged liability, and how best to defend a matter against SARS,” they said.