Monday 8 April 2013

One-Way Traffic with SARS

TAXPAYERS face various obligations imposed on them as a result of the provisions of the Tax Administration Act, No 28 of 2011. 

Where, for example, a taxpayer fails to submit a tax return timeously, the Commissioner: South African Revenue Service is compelled to impose the penalty provided for in section 211 of the Tax Administration Act. 

Where a taxpayer receives an assessment and fails to pay the tax reflected thereon within the time period allowed, the Commissioner is empowered to file a statement at the court, which has the effect of a civil judgment against the taxpayer, and once such judgment has been obtained, SARS can seek to execute on the strength of that judgment.

Alternatively, the Commissioner may direct any third party holding funds on behalf of the taxpayer to pay these over to the Commissioner and not to the taxpayer.

The tough provisions of the Tax Administration Act against taxpayers is not balanced by available remedies against SARS officials who fail in their obligations
These are but a few examples of the draconian powers which the Commissioner has in addressing the failure on the part of the taxpayer to comply with their obligations imposed under this act. But what remedy does a taxpayer have where the Commissioner and his officials fail to adhere to the obligations imposed on them under the Tax Administration Act?

Section 42 of the act requires that a SARS official involved in, or responsible for, an audit under the provisions of the act must, in the form and in the manner as may be prescribed by the Commissioner by Public Notice, provide the taxpayer with a report indicating the stage of completion of the audit. The Commissioner published the required Public Notice on 1 October last year, setting out the timing of submission of the report to the taxpayer under audit, as well as the details to be contained in that report.

In summary, those taxpayers who were subjected to an audit prior to the commencement of the Tax Administration Act on 1 October 2012 were entitled to receive a report advising as to the stage of completion of the audit no later than 31 December 2012. We did receive a number of reports advising as to the stage of completion of the audit, but in a large number of cases, such reports were not submitted to taxpayers as required.

Where the audit on the taxpayer’s affairs commenced after October 1 2012, the Commissioner is required to submit a report to the taxpayer advising as to the status of the audit within 90 days of the date of the audit’s commencement. Such reports are not being issued as required, and the question therefore arises what a taxpayer is entitled to do where the Commissioner’s officials fail to comply with their statutory obligations.

Unfortunately, the Tax Administration Act itself does not contain any remedy for the taxpayer, and the taxpayer would only have recourse to the courts, on grounds that the Commissioner has failed to comply with the taxpayer’s right to administrative justice enshrined in the Constitution and as fleshed out in the Promotion of Administrative Justice Act, No 3 of 2000.

Where a taxpayer fails to pay tax when payable, the Commissioner is empowered to seek a civil judgment for the recovery of the tax in terms of section 172 of the Tax Administration Act. Previously, under the provisions contained in section 91 of the Income Tax Act, No 58 of 1962, as amended, the Commissioner was not required to inform the taxpayer that it was intended to seek a judgment against the taxpayer. 

The Tax Administration Act now requires at section 172(1) that SARS is required to give the taxpayer at least 10 business days’ notice of the intention to file a statement at the Court which would have the effect of a judgment against a taxpayer. The only basis on which SARS is not required to give the taxpayer prior notice of taking judgment against the taxpayer, is where SARS is satisfied that giving notice would prejudice the collection of the tax. 

Unfortunately, we are seeing too many cases where the Commissioner has proceeded to take judgments against the taxpayer after 1 October 2012 without affording the taxpayer the 10-day notice period. Once a judgment has been taken against the taxpayer, the only recourse available would be to seek SARS’s assistance in withdrawing the certified statement filed at the Court under section 176 of the Tax Administration Act, or, alternatively, to launch proceedings in the High Court for an order rescinding the judgment.

Once a taxpayer has been subjected to an audit, SARS, invariably, will issue an additional assessment to the taxpayer, and the taxpayer will then have to decide whether to dispute the adjustments made and to lodge a formal objection against that assessment. The Constitutional Court, in the Metcash case, ruled that the so-called “pay now argue later” rule was valid, and did not violate the rights contained in the Constitution. 

However, a taxpayer is entitled, under section 164 of the Tax Administration Act, to request that SARS postpones the payment of the tax pending the finalisation of the objection or appeal.  The taxpayer is required to submit a well motivated application requesting postponement of payment of tax pending an objection or appeal, and must remember that, should the dispute finally go against the taxpayer, that interest will remain payable from the date on which the assessments were issued to the taxpayer. This can cause a significant burden on a taxpayer where the dispute takes years to resolve.

It must be remembered that, under section 164(6) of the Tax Administration Act, SARS may not take recovery steps against the taxpayer while the taxpayer’s request for postponement of payment of tax in dispute is being considered. 

In practice, it has happened too often that a taxpayer has filed an objection and simultaneously requested a postponement of payment of tax, under either section 88 of the Income Tax Act or section 164 of the Tax Administration Act, and does not receive a response from the Commissioner whether their request for postponement of payment has succeeded. In some cases, SARS has taken steps to recover the tax in dispute despite the fact that they have requested postponement of payment of tax in dispute.

Where a taxpayer receives an additional assessment from SARS, it is necessary that the taxpayer be advised as to the reasons for the adjustments made in the calculation of taxable income or any other adjustments made in assessments issued to the taxpayer for other taxes. 

In many cases, the SARS officials will comply with their statutory obligations and supply taxpayers with reasons for adjustments made in the calculation of taxable income, but, unfortunately, this is not always the case.

Taxpayers are entitled to call for reasons for adjustments made to assessments in terms of rule 3(1)(a) of the Rules Governing Objections and Appeals and, should the Commissioner fail to supply the reasons requested, it would be necessary to launch an application to the Tax Court under rule 26 of the Rules Governing Objections and Appeals.

Where a taxpayer disputes an assessment issued by the Commissioner, not all disputes proceed to the Tax Court, as many disputes are now resolved via the Alternative Dispute Resolution procedure. Once the matter has been settled, the taxpayer and SARS conclude a settlement agreement, and the taxpayer is deemed to have withdrawn their objection and appeal against the assessments issued by SARS, and SARS is then required to issue amended assessments to give effect to the settlement agreement.  

Again, we are currently seeing many instances of settlement agreements being concluded without adjustments being made to the affected assessments. As a result, taxpayers conclude a settlement agreement, pay what is required under that agreement and then receive demands for the full amount which was originally in dispute. A taxpayer can compel SARS to adhere to the settlement agreement only by launching an application to the High Court, which should not be necessary if SARS dealt with the matter timeously and properly.

SARS has extensive powers to gather information from taxpayers and should a taxpayer fail to comply SARS can take various steps against the taxpayer. 

Many taxpayers applied for relief under the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act 6, No 8 of 2010 which came to an end on 31 October 2011. SARS took a long time to evaluate the thousands of applications received and it was common for SARS to advise a taxpayer that their application had been considered and that the taxpayer must return the signed VDP agreement within five working days despite the fact that SARS has had the application for a period of almost 17 months. 

Once the VDP agreement was signed the taxpayer had to complete the VDP returns which were not dealt with in the law and invariably taxpayers were given a very limited period of time to attend to the completion of those returns. The imposing of undue pressure on taxpayers and their advisers in this manner is inequitable.

The fact that officials do not adhere to their obligations under the Tax Administration Act results in an increase in costs incurred by taxpayers, which currently cannot be recovered from SARS unless an action is instituted in the High Court and the court awards costs against SARS on a punitive basis.

The Tax Administration Act creates a legal framework to create the office of Tax Ombud, and it is hoped that the creation of that office will alleviate some of the issues identified above. SARS also requires under the Tax Administration Act that all tax practitioners are registered with SARS, and a controlling body which may take disciplinary action against tax practitioners who do not adhere to the provisions of the law and the rules regulating tax practitioners. 

Procedures are set down whereby complaints against tax practitioners will be dealt with, but the process whereby a taxpayer can lodge a formal complaint against the misconduct of a SARS official is not well-known or publicised, and it is questioned whether this procedure exists. 

It is unfortunate that the Tax Administration Act does not contain a specific remedy to taxpayers where SARS officials fail to adhere to their obligations imposed on them under the Tax Administration Act.

Dr Beric Croome is a tax executive at ENS. This article first appeared in Business Day, Business Law and Tax Review, 8 April 2013. Free image from ClipArt

Thursday 4 April 2013

Lodging Objections Against Assessments Issued by the Commissioner: South African Revenue Service


On 1 October 2012, the Tax Administration Act, No 28 of 2011 (‘the TAA’) came into force.  As a result of the commencement of the TAA, several sections of the fiscal statutes were repealed and replaced by corresponding provisions in the TAA.  

The primary purpose of the changes is to consolidate existing tax administration legislation into a single, more comprehensive statute, which will, hopefully, ensure that tax administration is managed more efficiently and effectively.  

It is important that taxpayers are aware of the changes introduced as a result of the TAA, particularly insofar as it relates to the objecting of assessments issued by the Commissioner: SARS.  

It must be noted that the TAA applies to all taxes administered by the Commissioner, other than customs and excise.  Therefore, what is stated below will apply to assessments issued to taxpayers for income tax, value-added tax and other taxes also.


One of the important changes brought about by the TAA relates to the definition of ‘date of assessment’, the importance of which relates to tax dispute resolution.

Previously, section 81(1) of the Income Tax Act, No 58 of 1962, as amended (‘the Act’), stated the following:

“Objections to any assessment made under this Act shall be made in the manner and under the terms and within the period prescribed by this Act and the rules promulgated in terms of section 107A by any taxpayer who is aggrieved by any assessment in which that taxpayer has an interest.”

Rule 4(e) of the Rules promulgated under section 107A of the Act, prescribing the procedures to be observed in lodging objections and noting appeals against assessments (‘the Rules’) states:

“a taxpayer who is aggrieved by an assessment may object to an assessment, which objection must –
                (e)           be delivered to the Commissioner at the addressed specified in the assessment for this purpose, within                   30 days after –
                                in the case where the taxpayer has requested reasons under rule 3, either the date of the notice by the                       Commissioner that adequate reasons or the date the reasons were furnished by the Commissioner, as                   the case may be, or;
                                in any other case the date of assessment.”

The Rules themselves do not define the meaning of the words ‘date of assessment’, and it is necessary, therefore, to refer to the definition section contained in section 1 of the Act, which defines the terms as follows:

“in relation to any assessment, means the date specified in the notice of such assessment as the due date, or, where a due date is not so specified, the date of such notice.”

Lastly, the meaning of ‘day’ in the definition section contained in section 1 of the Rules means:

“a day as contemplated in section 83(23) of the Act.”

Section 83(23) of the Act defines ‘day’ as:

“any reference in this Part and the Rules to ‘day’ means any day other than a Saturday, Sunday or public holiday: provided that the days between 16 December of a year and 15 January of the following year, both inclusive, shall not be taken into account in determining days or the period allowed for complying with any provision in this Part or the rules.”

In addition, paragraph 6.1 of SARS Guide on Tax Dispute Resolution (‘SARS Guide’) sets out when an aggrieved taxpayer may object to an assessment.  It refers to the definition of ‘date of assessment’ contained in section 1 of the Act and thereafter states the following:

“Please note that where an assessment has a ‘date of assessment’ on the assessment form, as well as a due date and a second date, the 30-day period must still be calculated with reference to the due date, in accordance with the definition of ‘date of assessment’ in the Act.  The ‘date of notice’ or ‘date of assessment’ only applies where there is no ‘due date’ on the notice.”

The SARS Guide provides an example, summarised in the table below, and which provides clarity on the matter:

Date of Notice:
Due Date:
Second Date:
In the above example, the objection must be filed within 30 days after 03/11/2003 of the ‘due date’, that is, by 15 December 2003. 
The tax due must be paid before 28/11/2003 (the “second date’).


The TAA has repealed section 81 of the Act, and, hence, objections and appeals against assessments issued by SARS are now governed by section 104 of the TAA.  Section 104(3) of the TAA directs that an objection to an assessment or decision must be lodged in the manner and within the time periods prescribed in the ‘Rules’.  

The aforementioned Rules have not yet been published by Public Notice in terms of section 103 of the TAA, and, thus, until such time as they are, the old Rules promulgated under the Act remain the relevant Rules in terms of section 264(2) of the TAA.

As pointed out above, there is no definition of ‘date of assessment’ in the ‘old Rules’.  It is, therefore, necessary to consider the definitions contained in the TAA, which took effect on 1 October 2012.  Section 1 of the TAA defines ‘date of assessment’ as follows:

“(a)          in the case of an assessment by SARS, the date of the issue of the notice of assessment;”

Based on the above, the period granted for the submission of an objection has changed, and has been reduced.  

Now, by referring to the example contained in the table above, the objection must be filed 30 days after 29 September 2003, that is, by 7 November 2003, which is a reduction of the time allocated for the submission of the objection of over a month.  

Were a taxpayer unaware of this change and thus follow the old rules in conjunction with the old definition of ‘date of assessment’, they would have to seek condonation for the late filing of the objection, which is unlikely to be continuously entertained by SARS on the basis of ignorance of the law.  The example shows the importance of this amendment to the fiscal provisions, and is important for all parties, especially taxpayers and their advisors, to ensure that they are aware of the changes that the TAA has introduced, and to seek advice where uncertainty arises.

Where the taxpayer has been subjected to an audit, the Commissioner will, in most cases, issue a letter advising that the taxpayer’s taxable income is being amended.  Often, these letters are referred to as a letter of assessment, and, if the letter complies with the definition of assessment contained in section 1 of the TAA, read together with paragraph 23(a) of Schedule 1 to the TAA, the taxpayer must object within thirty days of the date of the letter of assessment.  In this regard, see the decision of the Court in C:SARS v South African Custodial Services (Pty) Ltd [2012] 74 SATC 61.

This article first appeared in
Without Prejudice (March 2013)


Where the taxpayer decides that the reasons received from SARS adequately set out the basis on which the assessment has been issued, the taxpayer must lodge a proper notice of objection setting out the grounds of the objection.  Clearly, in the event that the reasons received are inadequate, a taxpayer is entitled to call for adequate reasons in terms of Rule 3(1)(a) of the Rules governing dispute resolution.

It is important that the taxpayer formulates their grounds of objection in detail and sets out the basis on which they dispute the assessment issued by the Commissioner. 

A question that is often asked by taxpayers disputing an assessment is the detail which must be contained in the letter objecting to the assessment issued by the Commissioner.  It is important that the objection sets out the basis on which the taxpayer challenges the assessment issued by the Commissioner.  The question that arises is whether a taxpayer may later expand upon the grounds of objection.

In ITC 1843 [2010] 72 SATC 229, the Court was required to determine whether the Commissioner was entitled to raise a new ground of assessment at the time when the Rule 10 statement setting out the Commissioner’s grounds of assessment was being issued to the taxpayer.  

Claasen J reviewed the Rules governing objections and appeals and decided that it was competent for the Commissioner to advance new grounds of assessment which had previously not been communicated to the taxpayer in the process leading up to the amended assessment issued to the taxpayer.  

The Court decided that, just as the Commissioner is entitled to modify his grounds of assessment in the Rule 10 statement to be issued to the taxpayer, the taxpayer would also be entitled to expand on and vary the grounds of objection contained in their letter of objection when the time arrived to finalise the grounds of appeal comprising the taxpayer’s Rule 11 statement setting out the grounds of appeal.

The Court, therefore, reached the conclusion that the Commissioner could add new grounds to its Rule 10 statement of grounds of assessment, and that there could be no prejudice to the taxpayer, on the basis that Rules 10 and 11 were interpreted in the manner contained in the judgment because of the built-in safeguards which were available to a taxpayer to vary their grounds of objection in their statement of grounds of appeal, regulated by Rule 11.

However, more recently, in the case of HR Computek (Pty) Ltd v The Commissioner for the South African Revenue Service, as yet unreported (case number 830/2011), where judgement was delivered by the Supreme Court of Appeal on 29 November 2012, the Court decided that the taxpayer is limited to the grounds stated in their notice of objection.  Unfortunately, Ponnan JA did not refer to the decision of Claasen J handed down in 2010 in ITC 1843.

The Supreme Court of Appeal reached the conclusion that, by virtue of the fact that the taxpayer had not raised an objection to the principal amount of VAT in its notice of objection, the taxpayer was precluded from raising it on appeal before the Tax Court.

The Court reached the conclusion that, when the taxpayer challenged the capital amount of the value-added tax reflected as payable for the first time in its Rule 11 statement, it effectively raised a new objection against an individual assessed amount that had not previously been objected to.  

The Supreme Court of Appeal, therefore, concluded that, in terms of section 32(5) of the Value-Added Tax Act, No 89 of 1991, as amended, because no objection had been lodged against SARS’ assessment, the taxpayer was liable to SARS for the additional VAT output tax amounting to R1,246,177.60, and that the assessment issued became final and conclusive in April 2007.  

Thus, the Supreme Court of Appeal held that the taxpayer’s appeal must fail, on the basis that it was not competent to amend the grounds of objection set out in the earlier letter of objection when the time came to prepare the Rule 11 statement of grounds of appeal.  This decision would appear contrary to that of Claasen J.

If the taxpayer is to be bound to their grounds of objection, following the decision of the Supreme Court of Appeal, the Commissioner must also be bound to the reasons supplied in the grounds of assessment notified to the taxpayer at the time that the assessment is issued.  

It would be most iniquitous if the taxpayer cannot vary the grounds of objection, whereas the Commissioner is entitled to supplement the basis on which the assessment was issued to the taxpayer.

It remains to be seen if the anomalies arising between ITC 1843 and the Supreme Court of Appeal’s decision in Computek will be reconciled when the new Rules governing objections and appeals are finalised under the provisions of the TAA.


Taxpayers wishing to dispute an assessment issued by the Commissioner must lodge the objection within the time allowed, or, alternatively, request adequate reasons for that assessment, and, should they fail to meet the time periods prescribed, they will need to call for condonation for the late submission of the objection.  It is important that the objection lodged against the assessment sets out in detail the grounds on which the taxpayer seeks to rely in challenging the assessment issued by the Commissioner.

DR BERIC CROOME Tax Executive Edward Nathan Sonnenbergs Inc.