SARS must provide grounds for Assessments issued

The Eastern Cape High Court was recently required to adjudicate a dispute between a taxpayer and the Commissioner: South African Revenue Service regarding the manner in which the Commissioner: SARS had dealt with the taxpayer.

In the case of V Z Nondabula v The Commissioner: SARS & Another (case no. 4062/2016  Eastern Cape Local Division: Mthatha, as yet unreported), the taxpayer applied for an interdict preventing SARS from invoking the provisions of section 179 of the Tax Administration Act (“the Act”) pending the final determination of the taxpayer’s objection to his additional income tax assessment. 

SARS had issued a notice to a third party under section 179 of the Act directing that the party had to pay whatever funds it held for the taxpayer to SARS in settlement of the tax allegedly due.

Image purchased www.iStock.com ©iStock.com/Devonyu "Taxpayer"

The taxpayer conducted business as a sole proprietor of a service station and received various assessments for the 2014 tax year. The assessments issued to the taxpayer were paid timeously in respect of the assessments issued in 2015. Subsequently, SARS issued a further assessment to the taxpayer reflecting a debt allegedly due amounting to R1 422 637.83. The first time that the taxpayer became aware of the tax debt was by way of a letter dated 29 September 2016 demanding payment of the tax within ten days, failing which, further action would be taken.

It would appear that SARS provided a statement of account reflecting the amount payable, but did not inform the taxpayer as to how the amount due was arrived at.

The taxpayer called on SARS to provide details regarding the additional assessment issued for the 2014 tax year and how the amount of the tax debt was arrived at.

In the papers before the court, SARS did not explain how the additional assessment issued to the taxpayer was arrived at. The taxpayer objected to the additional assessment through the offices of his accountants and SARS responded to the objection by advising that the objection did not comply with the rules.

The accountant submitted a further objection challenging the assessments issued by SARS but the objection filed by the accountants were not responded to, and even where there was a response the court indicated that it was not a substantive response to the taxpayer’s objection.

The court pointed out that SARS is a creature of statute and is therefore required to operate within the statutory provisions which empower it.

The court reviewed the statement of account provided by SARS to the taxpayer and other documents provided and reached the conclusion that SARS had not provided the taxpayer with a statement of the grounds for assessment as required in terms of section 96(2)(a) of the Act. The court pointed out that SARS is an organ of state and SARS exercises a public power or performs a public function in terms of the Act. 

Under section 195 of the Constitution SARS must be accountable and must comply with the Constitution. At paragraph 25, Acting Judge Jolwana stated:

“There is no doubt the first respondent dealt with the applicant in an arbitrary manner contrary not only to the Act but most importantly the values enshrined in the Constitution were not observed by the first respondent. The applicant is a business man and employs quite a number of people in our country where the unemployment rate is alarmingly high. The first respondent’s actions had the potential to close down applicant’s business with catastrophic results not only for the applicant and his family but also for all of his employees in a situation in which unemployment is rampant and reaching crises proportions.”

The court concluded that SARS must comply with its own empowering legislation and most importantly it must promote the values of the Constitution of the Republic of South Africa when exercising its powers. The court further concluded that SARS has failed to do so and particularly failed to provide the taxpayer with information prescribed in section 96 of the Act. 

The court therefore decided that SARS acted unlawfully and unconstitutionally and thus set the third party notice aside and also directed SARS to pay the taxpayer’s legal costs.

Unfortunately there are too many instances where SARS issues an assessment to a taxpayer without explaining the basis of that assessment and then proceeds to collect the tax on that additional assessment. 

Furthermore, SARS often fails to properly deal with objections lodged to an assessment, rejecting the objection as invalid. Taxpayers must be aware of the right that they have to be informed of the details of the assessment issued to them and failing SARS’s adherence to the Act they can either lodge a complaint with the office of the Tax Ombud, or alternatively, approach the court for relief.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, August 2017.