The Eastern Cape Division of the High Court delivered judgment on 5 May in the case of Commissioner for the South African Revenue Services v J Brown, case no 561/2016, as yet unreported, directing the taxpayer to submit a response to the Lifestyle Questionnaire submitted to him by the Commissioner for the South African Revenue Service (“SARS”).
According to the judgment, Mr Brown was not registered for tax purposes and had never submitted tax returns to SARS. SARS made an application to the court requesting that the court direct the taxpayer to respond to the Lifestyle Questionnaire and the taxpayer contended that he had shown just cause for his refusal to respond to the Lifestyle Questionnaire.
SARS submitted the Lifestyle Questionnaire to the taxpayer on 19 October 2015, and the taxpayer was required to submit the completed questionnaire to SARS within 21 business days. The letter indicated that the period of investigation covered the 2011-2015 tax years and that SARS was in the process of reviewing the taxpayer’s file and that the information was requested in terms of section 46(1) of the Tax Administration Act (‘TAA’).
The court indicated that the Lifestyle Questionnaire comprised 26 pages and that the first page thereof draws the taxpayer’s attention to the provisions of section 72(1) of the TAA which provides that a taxpayer may not refuse to complete and file a return on the basis that to do so may incriminate the taxpayer.
The information requested by SARS related to the taxpayer and his wife’s personal particulars and circumstances, personal and private investments and assets as well as properties owned by him and his spouse together with income received during the period under review and any expenses incurred.
The taxpayer’s attorneys responded to SARS letter on 5 November 2015 and in that letter reminded SARS of its statutory obligations towards taxpayers and requested confirmation that SARS will keep the respondent informed of the progress and findings of any audits and that he will be given a reasonable opportunity to respond to the findings thereof.
The taxpayer’s attorneys also required the following information before the taxpayer would reply to SARS’s questionnaire:
- “In terms of which sections of which law the respondent was obliged to submit the relevant material;
- If this is for administration of any tax law, the relevant subsection of that definition in section 3(2) of the Act, must be quoted, supported by the underlying facts and circumstances that make the enquiry foreseeably relevant with the reasonable specificity as required by the Act;
- Adequate reasons for the questionnaire, investigation and audit and why it is being conducted, including the underlying risk analysis for the industry the taxpayers is in, on which this audit is based; and
- Copy of the SARS id’s and letters of the of the SARS assessors as well as the line manager involved in the matter.”
SARS was informed that the taxpayer would also submit a formal request for the above information under the Promotion of Access to Information Act. (‘PAIA”)
SARS subsequently replied to the taxpayer’s letter reminding his attorney’s about the taxpayer’s statutory obligation to pay the prescribed fee under PAIA and stating that the request for information under the law would not be processed until the prescribed fee had been paid.
Further correspondence passed between SARS attorneys and the taxpayer’s attorneys with SARS reminding the taxpayer’s attorneys that the taxpayer had a duty to respond to SARS request for information.
The taxpayer‘s attorneys indicated that the request to complete the questionnaire constituted administrative action and was subject to the principle of legality and that the taxpayer had just cause not to respond to the request because the information requested by him had not been provided to him and thus he was entitled to assume that the exercise of a power in terms of section 46 of the TAA had not been properly authorised.
|The court directed the taxpayer to submit a proper response |
to the Lifestyle Questionnaire within two weeks
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The taxpayer indicated that he would only reply to SARS’s request for completion of the Lifestyle Questionnaire once the information requested in terms of PAIA had been supplied by SARS.
SARS agreed to supply copies of the SARS identification cards but refused access to the remainder of the records and information required by the taxpayer. SARS declined the request of that information on the basis that disclosure thereof would jeopardise the effectiveness of SARS auditing procedures and methods used by SARS to identify taxpayers.
It was argued by SARS that the provisions of section 46 are peremptory and that a taxpayer has no choice but to submit the information where SARS calls for information under that section. SARS raised various reasons contending why the taxpayer was obliged to supply the information requested.
The taxpayer in return contended that SARS was seeking to conduct an unlawful fishing exhibition and was not entitled to the information as the request constituted an infringement of the taxpayer‘s constitutional rights set out in the Bill of Rights.
The court reviewed the arguments raised by SARS and the taxpayer, and came to the conclusion that the issuing of the Lifestyle Questionnaire was done in the course of the administration of a tax Act andwas therefore satisfied that all of the jurisdictional facts contained in section 46 had been complied with.
The taxpayer contended that the request for information constituted administrative action which was protected by the right to just administrative action. SARS argued that the request for information under section 46 of the TAA constituted a preliminary investigation by SARS which may or may not result in a more formal inquiry into the taxpayer’s affairs.
The court decided that it is only once the information has been received by SARS and it has been established that a further inquiry is required that the principles of administrative justice must be observed.
The court concluded that SARS had provided sound reasons for its decision to issue the Lifestyle Questionnaire particularity taking account of the fact that the taxpayer was not registered and had failed to submit tax returns. The Court decided that the refusal by SARS to make information available to the taxpayer under PAIA was justified.
The court directed the taxpayer to comply with section 46 of the TAA and submit a proper response to the Lifestyle Questionnaire within two weeks of granting of the order in question. The court further ruled that should the taxpayer fail to submit the completed Lifestyle questionnaire, he would be held in contempt and will be committed to imprisonment until such time as he complies with the court order.
In addition, the taxpayer was also ordered to pay SARS costs of the suit on the party and party scale.
Thus, taxpayers who decide not to submit information requested to do so by SARS under section 46, need to be aware that such behaviour will not be condoned by court.
Dr Beric Croome is a Tax Executive at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, June 2016