The In Duplum Rule
by Siyabulela Mabusela
The tax submission deadline has come and gone. For the tax year under review in order to make the process of submitting tax returns seamless and quick, the South African Revenue Service (“SARS”) implemented an auto-assessment process in which a select number of taxpayers will have their tax returns auto-assessed. The auto-assessed figure is not set in stone as the taxpayer is able to amend the return.
It is important to note that any overpayment/underpayment of tax will be processed as normal. This article will focus on the implications of the latter.
As per the Tax Administration Act Chapter 12, General interest rules:
Section 187. (1) If a tax debt or refund payable by SARS is not paid in full by the effective date, interest accrues on the amount of the outstanding balance of the tax debt or refund –
- (a) at the rate provided under section 189; and
- (b) for the period under section 188.
In duplum rule:
The in duplum rule has formed part of South African common law and its origin can be found in Roman Law, it safeguards debtors from a situation in which the interest amount owing on a debt could exceed the initial capital balance. If a debtor owes R100 000 to a creditor, the accumulated interest amount on that debt cannot exceed R100 000 bringing the total balance due to R200 000.
The common law application of the in duplum rule does not limit the interest amount to the current outstanding capital balance. For example, in a situation in which a payment is made to reduce the interest balance owing, non-payment towards further reducing the interest amount will result in the amount previously paid (let us assume that this amount is R10 000) being due and as such take the outstanding balance back to the initial amount.
Legislation:
The National Credit Act (“NCA”) section 103. (5):
Despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in section 101 (l) (b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs. Credit agreements may require that a debtor pay service fees, initiation fees, collection costs, cost of credit insurance and administration charges, all of these fees/costs including interest fall within the ambit of the statutory application of the in duplum rule. The common law application of the in duplum on the other hand applies only to interest.
Tax application:
It is yet to be established with certainty whether the in duplum rule applies to a tax debt.
The Supreme Court of Appeal (“SCA”) case of: CSARS v Woulidge concluded that the in duplum rule could, “only be applied in the real world of commerce and economic activity where it served considerations of public policy in the protection of borrowers against the exploitation of lenders”. Interest on unpaid tax does not arise because of a contractual agreement between the SARS and a taxpayer but is the result of the operation/application of statute.
Section 188 of the Tax Administration Act (“TAA”) deals with the period over which interest accrues and states the following:
Section 188. (1) Unless otherwise provided in a tax Act, interest payable under section 187 is imposed for the period from the effective date of the tax to the date that the tax is paid.
The wording from the above-mentioned section, suggests that the interest amount owing by the taxpayer on the tax debt could exceed the capital amount owing. Section 187 of the TAA however states that a senior SARS official, if satisfied that the interest amount payable by a taxpayer is payable due to circumstances under their control. The official unless prohibited by the Income Tax Act, 1962 (“Act”) can state that the interest as is due not be payable by the taxpayer. These circumstances are mentioned in the TAA and are limited to the following:
- 1. a natural or human made disaster
- 2. a civil disturbance or disruption in services: or
- 3. a serious illness or sickness.
No mention is made in relation to the application of the in duplum rule. It is therefore evident that the Commissioner’s discretion is limited only by section 187 the TAA and therefore the application of the in duplum rule towards interest on tax debts is doubtful. In order to avoid interest and penalties it is best to submit returns and make payments on time.