On Friday, 0ctober 29 2010 the Commissioner of the South African Revenue Service released the draft Tax Administration Bill (TAB) for a second round of public comment. The TAB has been approved by cabinet and it was originally envisaged that it would be introduced to parliament during November 2010. An important amendment contained in the latest draft of the TAB, is the intention to create a Tax 0mbud's 0ffice in South Africa. (See HERE)
The press release issued by SARS at the time the TAB was released, states:
"A new framework for a Tax Ombud's Office to provide simple remedies to taxpayers affected by failures by SARS to fully respect taxpayers’ rights. The framework draws on those of the Canadian Taxpayer Ombudsman and the UK Revenue Adjudicator. The creation of this office was foreshadowed when SARS introduced the new court rules and the SARS Service Monitoring Office in 2003, when the then Minister of Finance stated that— 'Once SARS's processes and procedures have improved sufficiently, the next important step that will be taken in emulating international standards will entail an important role for an Ombud."'
Thus, the most recent draft of the TAB now contains clauses 14 to 21, which create the legal framework to create a Tax Ombud’s Office in South Africa.
The decision to create a Tax Ombud in South Africa must be welcomed and answers a call for its establishment made over many years by the Commission of Inquiry into the Tax Structure of South Africa, professional bodies and tax practitioners.
Clause 14 of the TAB confers on the Minister of Finance the power to appoint a Tax Ombud for a period of three years, which term may be renewed. The Minister has also been conferred the power to determine the conditions regarding remuneration and allowances to be paid to the Ombud. The TAB, similarly, enables the Minister to remove the Ombud for any reason considered good and sufficient.
The TAB empowers the Minister to designate a person working in the Office of Tax Ombud as Acting Tax Ombud while there is a vacancy, and that person can act for no longer than a period of 90 days at a time.
The draft legislation requires that the person appointed as Tax Ombud is accountable to the Minister and must have a good background in customer service, as well as tax law. In addition, the person may not, at any time, have been convicted of theft, fraud, forgery or any offence involving dishonesty in the preceding five years.
Thus, the Tax Ombud will report to the Minister and not to the Commissioner: SARS, which should create the desired degree of independence.
In accordance with clause 15 of the TAB, the staff at the Office of the Tax Ombud is required to be employed under the provisions of the SARS Act and will be seconded from SARS. The Tax Ombud’s Office will be funded out of the funds allocated to SARS.
The TAB provides that the Tax Ombud and the staff attached to that office are subject to confidentiality provisions which will be contained in Chapter 6 of the TAB, currently enshrined in s4 of the Income Tax Act, Act 58 of 1962, as amended (that is, the so-called “secrecy provisions”).
The TAB prescribes the mandate of the Tax Ombud and provides that the Tax Ombud is charged with reviewing and addressing complaints by the taxpayers regarding a service matter or procedural or administrative matter arising from the application of the provisions of a Tax Act administered by SARS.
The Tax Ombud, in discharging his or her mandate, is required to undertake the following:
• Review a complaint and, if necessary, resolve it through mediation or conciliation;
• Act independently in resolving a complaint;
• Follow informal, fair and cost effective procedures in resolving a complaint;
• Provide information to a taxpayer about the mandate of the Tax Ombud and the procedures to pursue a complaint;
• Facilitate access by taxpayers to complaint resolution mechanisms within SARS to address complaints; and
• Identify and review systemic and emerging issues related to service matters or the application of the provisions of the TAB that impact negatively on taxpayers.
Clause 17 of the TAB makes it clear that the Tax Ombud may not review legislation or tax policy, or SARS policy or practice generally prevailing, or deal with any matter subject to objection and appeal under a fiscal statute, or any decision which is before the Tax Court. In those overseas countries where Tax Ombud Offices have been created, the resolution of legal disputes falls outside of the jurisdiction of the Tax Ombud and, in this respect, South Africa is adhering to the international norm.
The TAB provides that, once the Tax Ombud receives an issue falling within the Ombud's mandate, the Ombud may determine how the review of the taxpayer's complaint is to be conducted, and whether a review should be terminated before completion of the matter.
Currently, where taxpayers encounter administrative difficulties with SARS, it is necessary to raise the matter first with the official dealing with the taxpayer's affairs and failing resolution at that level, to refer the matter to the branch manager of the Receiver of Revenue office in question.
Only once that procedure has failed to resolve the matter, may the matter be escalated to the SARS Service Monitoring Office. Clause 18 of the TAB requires the taxpayer to exhaust available complaints resolution mechanisms in SARS before resorting to the Tax Ombud, unless there are compelling circumstances not to do so and this follows international practice.
It is provided that the Tax Ombud may entertain a request for assistance without exhausting SARS internal complaints procedures where the matter raises systemic issues or exhausting the complaints resolution mechanism will cause undue hardship to the taxpayer, or exhausting the SARS procedures is unlikely to produce a result within a period of time which the Tax Ombud considers reasonable.
In terms of clause 19 of the TAB, the Tax Ombud must report directly to the Minister and must submit an annual report to the Minister within five months of the end of SARS's financial year. In addition, the Tax Ombud is required to submit a report to the Commissioner: SARS, quarterly, or other intervals as may be agreed.
The annual report to be submitted by the Tax Ombud must contain a summary of at least ten of the most serious issues encounters by taxpayers, including a description of the nature of the issues.
Furthermore, the report must contain an inventory of the issues described for which action has been taken and the result of such action, and action that remains to be completed in the period during which each of them has remained unresolved.
Where no action has been taken, it is necessary to indicate the reasons for inaction on the taxpayer's complaint. Furthermore, the Tax Ombud’s report must contain recommendations for administrative action as may be necessary to resolve problems encountered by taxpayers in dealing with SARS.
It is specifically required that the Tax Ombud must seek to resolve all issues within the Tax Ombud's mandate in an efficient and effective manner and communicate with any SARS officials that may be identified by SARS. It must be noted that the Tax Ombud's recommendations are not binding on taxpayers or SARS. This would appear to follow the international norm, but based on experience, it does appear that revenue authorities, generally, will follow the recommendations made by the Tax Ombud and it is hoped that this outcome will prevail in South Africa.
The confidentiality of information dealt with by the Tax Ombud is preserved at clause 21 of the TAB. However, information may be disclosed where the information disclosed does not directly or indirectly reveal the identity of the taxpayer to whom it relates. Where information is required by the TAB or any other Act of Parliament, it must be disclosed, but only for the purposes of such statutes.
It remains to be seen when the TAB will be introduced to parliament and will take effect. Clearly, the creation of the Tax Ombud should create an effective means whereby taxpayers can resolve administrative difficulties encountered in dealing with SARS, or where SARS has abused taxpayers' rights. It must be noted that the Tax Ombud has no jurisdiction to deal with objections and appeals and legal disputes, as is the case with Ombud's offices around the world.
It is unfortunate, though, that the Tax Ombud is not empowered to award costs or damages to taxpayers who have suffered financial loss as a result of the conduct of SARS and its officials.
Dr Beric Croome is a tax executive with Edward Nathan Sonnenbergs. This article first appeared in the December 2010 issue of Without Prejudice