Tuesday 9 November 2010

Tax Administration Bill and Taxpayers' Rights (Part 2)

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

Important changes contained in TAB

The TAB will create a single framework for all tax types which must be welcomed as taxpayers are currently required to submit different forms to register for different taxes, and the administrative burden of procuring registration numbers for the different taxes is onerous. Hopefully, this administrative burden will be eased somewhat once the TAB is fully operational.

The TAB will also broaden the scope of third party reporting to SARS to facilitate the greater pre-population of information on tax returns issued by SARS to taxpayers. Currently, taxpayers who are required to submit tax returns will receive a return reflecting details of remuneration received from employers and it is anticipated that the return will be enhanced whereby interest, medical aid related information and other third party information will be set out in tax returns, thereby reducing the administrative burden in submitting returns to SARS.

Currently, it is unclear what level of SARS official is authorised to exercise the powers contained in the various fiscal statutes. The TAB contains an innovation in this regard whereby certain powers can only be exercised by the Commissioner personally and a second tier of powers may be exercised by so-called "senior SARS officials" only. The remaining powers can be exercised by the third tier, namely, SARS officials generally. SARS will, therefore, need to indicate which officials fall into which category so that taxpayers can satisfy themselves that the more important powers have indeed been exercised by a senior SARS official as defined in the TAB.

The TAB also seeks to extend SARS information-gathering powers to enhance compliance by taxpayers with the fiscal statutes.

Currently, when a taxpayer is subject to an audit by SARS, there is no process whereby SARS is required to inform the taxpayer as to the status of that audit and this will change as a result of the enactment of the TAB. The TAB specifically provides that SARS must provide regular feedback to taxpayers informing them as to the status of the audit, which will bring South Africa into line with a number of other democracies. Importantly, SARS must, in terms of the TAB, inform a taxpayer that an audit has been concluded. Currently, a taxpayer may receive a request for information or be subjected to an audit and is never formally advised that the audit has been completed. It may take many months and sometimes years for SARS either to request further information or issue an amended assessment. With the TAB, this will change and SARS will be legally required to inform taxpayers that the audit has been completed.

Currently, the fiscal statutes do not clearly demarcate between routine audits and criminal investigations that may be undertaken by SARS. Under the Constitution, persons facing criminal prosecution enjoy certain rights and in light thereof, the TAB requires the separation of audit and criminal investigations by SARS to comply with the constitutional rights conferred on an accused.

It will be necessary for SARS to indicate to the taxpayer that an audit is no longer a routine audit but that the taxpayer is facing a criminal prosecution. This should enhance the protection of taxpayers' rights in this area.

The TAB contains a provision whereby SARS seeks to obtain a power to conduct searches of premises without a search warrant to protect documents from destruction. Currently, under s74D of the Income Tax Act (58 of 1962, as amended), the Commissioner is required to apply to the high court for a warrant authorising the search of premises and seizure of documents.

The TAB also contains a provision that, where SARS is concerned that documents may be destroyed prior to obtaining of a search warrant, a senior SARS official may authorise a search and seizure operation without a warrant issued by a court. There are concerns that this power may be abused as there is no independent check on the manner in which the power is exercised. It must be noted though that other statutes in South Africa, such as the Competition Act (89 of 1998), contain provisions whereby the state can conduct search and seizure operations without procuring a warrant from a court where there is a serious concern that documents will be destroyed prior to the obtaining of the search and seizure warrant.

Clause 88 of the TAB contains a provision whereby SARS may issue what is referred to as a "jeopardy assessment.” This entails SARS issuing an assessment in advance of the date on which a tax return would normally be due, so long as a senior SARS official, as defined, is satisfied that it is required to secure the collection of tax that would otherwise be in jeopardy. Currently, and based on the decision of the courts, SARS can only collect tax once an assessment has been issued to a taxpayer.

Clause 88 of the TAB seeks to neutralise the decision of Singh v Commissioner for SARS 65 SATC 203, which decided that SARS may only seek to recover tax once an assessment has been issued. Clause 88 seeks to confer on SARS the power to issue an assessment here SARS is of the opinion that the tax reflected as payable on that assessment will not be paid. This is a draconian provision and, as a result, clause 88(2) provides that in addition to the normal rights of objection and appeal to an assessment, a taxpayer can submit a review application against an assessment to the high court on the basis that the jeopardy assessment is excessive or, alternatively, that the circumstances do not justify the issue of such an assessment.

The TAB also proposes that all judgements delivered by the tax courts in the country are published, thereby placing taxpayers on an equal footing with SARS. Currently, SARS is in possession of all judgements delivered by the tax court, whereas taxpayers are only aware of those decisions which are published in some form or another. This is discriminatory and unfair and the move to publish all judgements of the tax court must be supported. There is no reason why all judgements of the tax court should not be published. Clearly judgements of the tax court cannot contain details of the taxpayer as this would violate the secrecy provisions contained in the various fiscal statutes.

The TAB contains rules refining the imposition of additional tax, which will bring South Africa into line with other democracies. Currently, SARS may, under s76 of the Act, impose additional tax of up to 200% where a taxpayer has failed to disclose all income or has sought a deduction to which they were not entitled. Typically, SARS is required to start off on the basis that the 200% additional tax should be levied and to reduce that by taking account of extenuating circumstances.

The TAB proposes a system whereby the conduct of the taxpayer will determine the scale of the additional tax levied whereby voluntary disclosure made by the taxpayer before SARS commences an audit will be treated far more leniently than those taxpayers who are obstructive or intentionally seek to evade tax. The TAB, therefore, proposes introducing objective criteria to be used in determining the quantum of additional tax to be levied where a taxpayer is in default under a fiscal statute.

To follow:

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

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