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

1 comment:

  1. Ironically this article is an example of one way traffic going the other way. SARS does not have the advantage of being able to write critical articles about specific taxpayers' actions or inaction, even if they are public companies or figures.

    The most it can do is respond to false statements that bring it into disrepute in limited circumstances or publish the details of those who have been convicted of tax offences by a court with no possibility further appeal.


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