Wednesday, 10 November 2010

Tax Administration Bill and Taxpayers' Rights (Part 3)

Part 1 (The importance of taxpayers' rights) appeared here

Part 2 (Important changes contained in TAB)  appeared here

Remedy for taxpayers

The TAB introduces a number of provisions that enhances taxpayers’ rights in South Africa, but unfortunately does not introduce a cost effective remedy where SARS has abused its powers or as has acted badly. Currently, taxpayers would be obliged to seek relief in the form of damages or costs of the High Court, which is a costly and time consuming exercise.

Taxpayers who are aggrieved about the manner in which they have been dealt with by SARS can lodge a complaint with the Service Monitoring Office, which is currently structured such that it is an office within SARS. It would be preferable if an independent ombudsman is created where taxpayers could lodge formal complaints against SARS and seek redress from SARS where the authorities have abused their position. Unfortunately, many taxpayers are reluctant to complain about SARS for fear of victimisation, whether such victimisation may or may not occur, and an ombudsman-type office would go some way in alleviating this concern.

In a number of democracies taxpayers are entitled to recover wasted costs from the revenue authority where the authorities have failed to comply with their statutory obligations or have caused taxpayers to incur costs as a result of poor administration of the fiscal statutes. Unfortunately, there is no provision currently whereby taxpayers can recover wasted costs from SARS.

Left: The TAB goes some way towards providing a remedy for taxpayers' complaints.

Recently, a number of taxpayers have encountered difficulties with SARS regarding the first provisional tax return submitted. In one case, SARS issued a letter to a taxpayer who had timeously submitted the first provisional tax return stating as follows:

"The IRP6 return submitted by you cannot be accepted and processed due to the following reasons:

1. You have not calculated the tax on estimated taxable income correctly for the amount declared and the year of assessment specified on the return. Please calculate the tax using the correct tax tables and estimated taxable income amount to enable the processing of the return

The completed return must be submitted as soon as possible as your filing obligations have not been met until such time as you have fully completed and filing [sic] the return.”

We are aware of other instances where letters have been issued by SARS for the first provisional tax return which incorrectly referred to the income threshold contained in paragraph 19 of the Fourth Schedule to the Act, which in fact deals with the second provisional tax payment and not the first provisional tax payment. In some cases, SARS has been required to withdraw letters issued by it to taxpayers.

In those cases where taxpayers have received letters advising that their provisional tax returns were incomplete, they have travelled to their closest SARS office, spending some hours at the SARS office waiting for an opportunity to discuss the matter with a consultant. Once the SARS official reviewed the letter and checked the taxpayers’ status on the system, it was established that the letters were erroneously issued. In such cases, taxpayers should, as a matter of right, be entitled to recover the costs incurred in travelling to SARS and be recompensed for the time wasted by them in attending to SARS erroneous letters. Currently, there are no provisions in our law which cater for this and it is unfortunate that the TAB does not address this lacuna.

Currently, where a taxpayer makes a mistake with a tax return, SARS will issue an additional assessment and impose additional tax for that mistake whereas when SARS makes a mistake, there is no apology, nor is there any recompense to the taxpayer.

Conclusion

The TAB was approved by cabinet on September 2 2010 and it is anticipated that the bill will be introduced to parliament during November 2010. It has not yet been indicated by when the TAB will take effect but it is more than likely to take effect over a period of time, commencing during 2011.

It is clear that the TAB does provide for feedback to be supplied to taxpayers subject to an audit, which was previously not the case and in other instances the TAB does seek to improve and uphold taxpayers’ rights.

Unfortunately, the TAB lacks a cost effective remedy for taxpayers and it would be far more preferable if measures were introduced whereby taxpayers could recover wasted costs and damages for mistakes made by SARS or where SARS abuses its powers. Ideally, a separate and distinct ombudsman’s office should be introduced to address taxpayers' complaints and grievances in dealing with SARS, as is the case in a number of democracies around the world.

Croome is a tax executive with Edward Nathan Sonnenbergs. This article first appeared in Without Prejudice November 2010 issue.
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