Celebrating Five years of the Office of the Tax Ombud

The Office of the Tax Ombud was created on 1 October 2013 and celebrates its fifth anniversary in October this year. The office was created to deal with taxpayers’ complaints which could not be resolved by taxpayers using the South African Revenue Service’s internal complaints processes.

The Office has a degree of independence as it reports to the Minister of Finance and can appoint its own staff without having to consult SARS. In addition, the office is funded by a budget approved by the Minister and not SARS.

Before taxpayers can lodge a complaint with the Ombud they must exhaust SARS internal complaints procedures unless compelling circumstances exist. To determine if compelling circumstances exist, it must be established if the complaint raises systemic issues or exhausting SARS complaint procedures will cause undue hardship to the taxpayer or is unlikely to produce a result within a period of time the Ombud considers reasonable.

The question that must be addressed is what constitutes a systemic issue. During August 2018 the Ombud published a list of twenty items that constitutes systemic issues. If a taxpayer encounters a systemic issue they do not need to exhaust SARS internal mechanisms first before filing a complaint with the Ombud.

The systemic issues are the following:

·         Delay in refunds in certain specific cases – the Ombud deals with twelve categories in this regard:

o   Failure to link submitted documentation requested by SARS to the main file

o   The unwarranted placing of Special Stoppers

o   Using the filing of new returns as an excuse to block refunds;

o   Delay in the lifting of stoppers and lack of a timeframe for doing so

o   Refunds for one period being withheld while an audit/verification is in progress on another period

o   Using historic returns to delay the payment of refunds

o   Raising assessments to clear unallocated credits

o   Requesting further information during an audit

o   Assessments successfully, but refund still not paid out

o   Raising assessments prematurely; 

o   Debt set-off not withstanding a request for suspension of payment

o   Verification assigned to the auditor but not finalised within the prescribed timeframe

·         Incorrect allocation by SARS of payments made by taxpayers

·         Taxpayers being affected by employer’s non-compliance with legislation relating to IRP5s

·         Inconsistency by SARS in providing taxpayers with timelines for finalisation of audits/verifications

·         Victims of identity theft being held liable for tax debts

·         Non-adherence by SARS to dispute resolution turnaround times

·         SARS’s failure to take information at its disposal into account, specifically relating to information requested during audit/verification and objection procedures

·         SARS taking collection steps when legally barred from doing so

·         SARS’s failure to take information at its disposal into account, specifically relating to the tax compliance system and the “pin” on the client’s profile indication tax compliance status (TCS)

·         Non-adherence to legislative requirements in respect of final demand and third party appointment in terms of section 179 (5) of the Tax Administration Act

·         Numerous follow-ups by taxpayers without being advised of the escalation process (unless the taxpayer was represented by a tax professional)

·         Pay-As-You-Earn Statement of Account issues relating to, inter alia, the reconciliation of the account specifically when recovering a debt

·         Numerous follow-ups relating to situations where SARS issues duplicate income tax numbers under one identity number (unless the taxpayer was represented by a tax professional)

·         SARS incorrectly invalidating the notice of appeal

 

·         SARS revising an assessment without issuing any prior communication

·         SARS revising an assessment without issuing a letter of findings

·         Refunds paid into wrong bank accounts

·         E-filing profile hijacking

·         Delay in e-filing profile transfer between tax practitioners due to as system error

·         Dispute resolution e-filing/system issues

It is anticipated that taxpayer complaints will get to the Ombud quicker than before as, if the complaint is systemic in nature, taxpayers do not need to adhere to SARS internal complaint mechanisms.

The Ombud has become an important means of redress for taxpayers who have encountered problems in their dealings with SARS. It is hoped that in time the independence of the office will be enhanced and greater powers conferred on the office as is the case in other countries.

Areas in which the Tax Ombud should have more power are:

·         In the United States, the Taxpayer Advocate, an office similar to the Tax Ombud, can issue Taxpayer assistance orders directing the Internal Revenue Service to refrain from taking action against taxpayers in certain well-defined cases. It is unfortunate that, in South Africa, the Tax Ombud does not, at this stage, have a similar power.

·         Another problem that still needs to be addressed is the issue of legal assistance for indigent taxpayers. In the United States, taxpayers can go to Low Income Taxpayer Clinics for assistance with their tax affairs. It is hoped that, in time, something similar will be introduced in South Africa.

·         The Ombud does not have the power to award wasted costs to taxpayers as is the case in some jurisdictions and hopefully in time this will be considered.

The SARS Service Charter has been published and this should assist the Ombud in evaluating how SARS is meeting the timeframes specified therein.

The Tax Ombud must be commended for the work done by the office since 2013 in educating taxpayers about taxpayers’ rights and addressing the administrative complaints in the tax arena. Hopefully, government will accept the recommendations of the Davis Tax Committee on Tax Administration and formally legislate the proposed Taxpayer Bill of Rights to further entrench taxpayers’ rights in South Africa.

Congratulations to the Office of the Tax Ombud and its staff on reaching its fifth anniversary and wishing the office every success in its endeavours in the future in addressing taxpayers’ administrative complaints and teaching taxpayers about the rights they have when interacting with SARS.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, October 2018.

Tax Ombud To Investigate Alleged Delays In Payment Of Refunds By Sars

On 27 March this year the Tax Ombud, namely, Judge B. M. Ngoepe, confirmed that he had requested and secured the approval of the Minister of Finance to review the alleged delays in the payment of refunds by the South African Revenue Service (“SARS”) to taxpayers.

The Office of the Tax Ombud was created by Part F of chapter 2 of the Tax Administration Act (“TAA”) which took effect on 1 October 2012. The Tax Ombud was created to deal with taxpayers’ complaints of an administrative nature and is an office independent of SARS which reports directly to the Minister of Finance.

The TAA was recently amended conferring greater autonomy on the Office of the Tax Ombud and specifically to enhance the mandate of the Tax Ombud and the power to request that the Minister of Finance approves a request made by the Tax Ombud to investigate any systemic and emerging issue relating to a service matter or the application of the provisions of the TAA or procedural or administrative provisions of the a tax Act. 

The approval granted to investigate the alleged delays in the payment of refunds to taxpayers is the first review to be conducted under section 16(1)(b) of the TAA which came into operation on 18 January 2017.

Image from www.taxombud.gov.za

The Tax Ombud’s review will encompass all categories of tax refunds.

The Tax Ombud approached the Minister for approval to investigate the apparent delay in the payment of refunds to taxpayers because of the volume of complaints received by the office of the Tax Ombud from taxpayers regarding the delay in refunds.

The Office of the Tax Ombud has accordingly advised both SARS and external stakeholders, comprising professional bodies representing tax practitioners and others of the investigation into the delays in refunds. SARS indicated that it will cooperate with the office of the Tax Ombud during the course of the investigation. 

The Office of the Tax Ombud has confirmed that it will engage both SARS and concerned taxpayers regarding the delays in payment of refunds to taxpayers.

The Office of the Tax Ombud will investigate the question of refunds due to taxpayers and make recommendations to the extent necessary.

In my capacity as chairman of the TAA sub-committee of the South African Instituted of Chartered Accountants (“SAICA”), we have received various representations from members of SAICA regarding the delay in refunds being paid to taxpayers.

Many delays are experienced by taxpayers claiming VAT refunds and whilst it is accepted that SARS must ensure that refunds are in order and prevent payment of fraudulent claims, taxpayers have experienced unnecessary delays in the payment of refunds. 

In many cases taxpayers have submitted VAT returns reflecting a refund payable and then suddenly SARS takes a decision reversing all input credits claimed by the taxpayer eliminating the refund without due process being followed which requires that SARS informs the taxpayer of reasons for adjustments made in assessments issued to the taxpayer. 

There have been a number of complaints that VAT vendors have submitted VAT refund claims only to discover that the refund has been eliminated on the basis that SARS requests the documents which it has not apparently received. Unfortunately, taxpayers often submit documents to SARS which are not property receipted and despite having submitted documents on more than one occasion encounter problems in dealing with SARS such that the refunds are eliminated without proper notice being given relating thereto.

In the case of income tax SARS will often summarily disallow all expenses claimed by a taxpayer despite the fact that the taxpayer’s expenses had been allowed in the past and will not properly consider the documents submitted by a taxpayer on multiple occasions. In some cases the documents submitted by taxpayers are voluminous and difficulties are encountered by taxpayers in filing the documents through the e-filling system because of constraints on the SARS system.

Taxpayers have also encountered difficulties in securing refunds from SARS after the successful conclusion of alternative dispute resolution procedures or after successfully prosecuting a tax appeal in the tax court. Once the tax court has delivered a judgment and SARS has decided not to appeal it and the taxpayer has paid the tax in dispute, the taxpayer is entitled to a tax refund together with interest thereon. In some cases taxpayers may secure the payment of their tax previously paid under protest but encounter further difficulties in securing the payment of the interest to which they are entitled under the provisions of the TAA.

Taxpayers who have encountered unreasonable delays in the payment of any tax refund from SARS should inform the Office of the Tax Ombud so that their case can be considered as part of the general review being conducted by the Office of the Tax Ombud into the alleged delay of refunds payable by SARS to taxpayers. 

Professional bodies have also made submissions to the Office of the Tax Ombud to assist it in its investigation into the delays faced by taxpayers in securing refunds from SARS.

It is hoped that the investigation into the delays in refunds will result in substantive proposals being made by the Office of the Tax Ombud to ensure that the undue delay in payment of refunds does not occur in future which adversely affects taxpayers’ business operations in South Africa. 

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

Reviewing the Tax Ombud’s Annual Report 2015/16

The Tax Administration Act (“TAA”) no 28 of 2011 created the office of the Tax Ombud as an office to deal with complaints by taxpayers which SARS has failed to resolve. 

The Tax Ombud, namely, Judge B. Ngoepe took office in October 2013 and recently released his annual report for 2015/16. From a review of that report it is clear that the number of complaints made by taxpayers to the office is increasing which indicates that taxpayers are becoming aware of the existence of the office and its purpose.

The Tax Ombud identified the delay on the part of SARS in finalising complaints as a cause for concern. From a review the summary of complaints outstanding, which the Tax Ombud is unable to finalise as a result of delays on the part of SARS, too many complaints remain outstanding for an extended period of time.

Furthermore, the Tax Ombud has identified challenges facing its office regarding the fact that the office cannot employ its own staff directly and can only do so in consultation with SARS. The Tax Ombud made representations that the TAA should be amended to allow for his office to employ staff directly without having to consult SARS. 

The Tax Ombud recently launched his Annual Tax Ombud Report 2015/16
©iStock.com/ "Executive Research" by sdominick

In addition, currently the office of the Tax Ombud’s expenditure is paid out of the funds of SARS which means that the office of the Tax Ombud does not have financial independence from SARS. It has been proposed that in future the funding of the office of the Tax Ombud will be by way of a budget allocated by the National Treasury and not out of the funds of SARS which should enhance the financial independence of the office.

The proposals to enhance the independence of the office of the Tax Ombud are contained in the tax bills to be tabled in parliament on 26 October.

A further difficulty facing the office of the Tax Ombud is that SARS has failed to update the SARS Service Charter which was last done in 2009. The Tax Ombud’s annual report indicates that the office provided SARS with a draft Taxpayer Bill of Rights for consideration. The Commissioner for SARS indicated recently that an updated taxpayer’s service charter would be released before the end of 2016 and that taxpayers would be able to submit comments before the documents is finalised and adopted.

Taxpayers must remember that the mission of the office of the Tax Ombud is to be an efficient, independent, impartial and fair redress channel for taxpayers who have had complaints against SARS which have not been satisfactorily resolved. 

It must be noted that the office of the Tax Ombud is unable to intervene in legal disputes but is there to assist those taxpayers who have encountered poor service from SARS or other administrative problems in their dealings with SARS. In the 2015/16 period the office of the Tax Ombud received 5904 contacts from taxpayers, not all of those constituted complaints, but also included enquiries received from taxpayers as to the purpose and function of the office of the Tax Ombud. 

A summary of the contacts received by the office of the Tax Ombud is set out below.

   

Contacts received	No. of Contacts	%
Queries received	3 771	64%
Complaints not falling within OTO mandate – rejected	938	16%
Complaints falling within OTO mandate – accepted	961	16%
Terminated complaints	234	4%
TOTAL	5 904	100%

From the table set out above, it would appear that out of the 5904 contacts received from taxpayers just under 1000 of complaints received fell within the mandate of the office. During the presentation of the Tax Ombud’s annual report for 2015/16 it was indicated that 87% of all complaints where resolved in favour of taxpayers. Complaints received by taxpayers related predominantly in respect of assessments, dispute resolution, refunds and account maintenance and a host of other issues.

Complaints were received from taxpayers both in South Africa and those outside of the country.

It is disturbing that out of the 961 complaints regarded as falling within the mandate of the office of the Tax Ombud, 460 thereof were unresolved by SARS and 86% of those complaints were already outside the turnaround time available to SARS. It is clear therefore that the level of service which taxpayers can receive from the office of the Tax Ombud is to a large extent dependent upon the turnaround time provided by SARS in dealing with complaints received by the office of the Tax Ombud.

64% of all complaints accepted by the office were service related, with 21% being procedural in nature and 15% administrative in nature. In 2014/15 the office only accepted 409 complaints and this increased to 961 in 2015/16. The annual report contains a summary of the types of complaints received by the office from taxpayers and the time period for which those complaints have been outstanding with SARS. 

It is unacceptable that so many complaints remain outstanding for an extended period of time which would indicate that SARS does not appear to take the resolution of taxpayers’s complaints seriously.

This does not enhance tax compliance as international research has shown that where taxpayers believe they have been treated fairly compliance levels are enhanced.

There were many complaints from taxpayers regarding the delays in payment of refunds which unfortunately continues to be a problem nationally and this has received ongoing coverage in the media. It remains to be seen if the office of the Tax Ombud will regard the delay in finalising refunds as a systemic issue which he will investigate of his own accord to understand the reasons therefore. 

Other complaints identified related to:

·         Delays in issuing tax clearance certificates;

·         Incorrect allocation of payments made by SARS;

·         Victims of identity theft;

·         Non-adherence by SARS to dispute resolution timeframes;

·         Failure by SARS to respond to requests for reasons for assessments;

·         SARS taking collection steps when legally barred from doing so;

·         Hijacking of e-filing profiles.

It would appear that taxpayers are becoming aware of the existence of the office of the Tax Ombud and where they have exhausted SARS’s internal complaints procedures they are resorting to the office of the Tax Ombud in an attempt to seek resolution of their complaints.

It is hoped that the Taxpayer’s Service Charter will be released by the end of the year so the taxpayers know and understand what levels of service they can expect in their dealings of SARS. 

Furthermore, it is important that SARS attends to taxpayers complaints timeously and that in subsequent Ombud’s annual reports, the turnaround time for complaints resolution by SARS will improve.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, November 2016. Image purchased www.iStock.com ©iStock.com/ "Executive Research" by sdominick

Tax Ombud to keep SARS customers Happy

Last month Minister of Finance Mr Pravin Gordhan announced that he had appointed retired Gauteng Judge President Bernard Ngoepe as the Tax Ombud in accordance with section 259 of the Tax Administration Act, No 28 of 2011 (‘the TAA’).  The Minister indicated that the Tax Ombud’s office is intended to provide taxpayers with a low-cost mechanism to address administrative difficulties that cannot be resolved by the South African Revenue Service (‘SARS’).

In terms of section 14 of the TAA, the person appointed as Tax Ombud is required to have a good background in customer service, as well as tax law, and the Minister confirmed that Judge Ngoepe has sound experience in exercising impartiality as well as the necessary knowledge in how best to balance the powers and duties of SARS and the rights and obligations of taxpayers.

The role of the Tax Ombud appointed by Minister of Finance, Pravin Gordhan ( above), is to address complaints made about service or procedural matters and ease frustration

Clearly, it will take time for the Tax Ombud’s office to become fully functional in that it will be necessary to appoint staff to that office and create the necessary infrastructure so that the Tax Ombud’s office can perform the functions provided for in the TAA.

It must be noted that the Tax Ombud is accountable to the Minister of Finance and not to the Commissioner: SARS.

In terms of section 15 of the TAA, the staff of the office of the Tax Ombud must be employed in terms of the South African Revenue Service Act, No 34 of 1997, and be seconded to the office of the Tax Ombud at the request of the Tax Ombud in consultation with the Commissioner.

The Tax Ombud’s office has not been created to deal with legal disputes between the taxpayer and the Commissioner, as well-defined processes already exist to deal with objections and appeals.

The Tax Ombud is charged with reviewing and addressing any complaints made by a taxpayer regarding a service matter or a procedural or administrative matter arising from the application of the provisions of any tax Act administered by SARS in terms of section 16 of the TAA.

The Tax Ombud is not empowered to review legislation or tax policy, SARS’ policy or practice generally prevailing, other than to the extent which it relates to a service matter or procedural or administrative matter arising from the application of the provisions of a tax Act by SARS or a matter which is subject to objection and appeal under a tax Act, except for an administrative matter relating to such objection and appeal or a decision of or proceeding in or matter before the Tax Court.

The Tax Ombud’s office in South Africa has been modelled on the Tax Ombudsman in Canada and the Taxpayer Adjudicator in the United Kingdom.  Thus, the mandate of the Tax Ombud’s office in South Africa is very similar to that conferred on the Tax Ombudsman in Canada and the Taxpayer Adjudicator in the United Kingdom.

Section 16 of the TAA prescribes the mandate of the Tax Ombud and the manner in which that mandate is to be discharged, which requires the Tax Ombud to:

·         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 TAA or procedural or administrative provisions of a tax Act that impact negatively on taxpayers.

Before a taxpayer proceeds to the Tax Ombud it is necessary that they exhaust the complaint resolution mechanisms within SARS.  This requirement is found in most countries where a Tax Ombud or similar office exists.

During 2002, the SARS Service Monitoring Office (‘SMO’) was launched with a view to assisting taxpayers facing administrative difficulties with SARS.  The SARS website indicates that, prior to a complaint being lodged with the SARS SMO, the taxpayer is required to give the SARS branch office or contact centre that is responsible for their affairs an opportunity to deal with an issue before raising it with the SSMO.  

Thus, the taxpayer is required to log a complaint with the SARS contact centre, and, if that does not resolve the matter within a reasonable time, to then request that the SSMO investigate the matter.  Now that the Tax Ombud is soon to be operational, it would appear that taxpayers will need to exhaust internal processes at SARS first, which includes the procedures set out above, before they proceed to the Tax Ombud.  SARS did indicate that they would clarify the complaint resolutions mechanisms which taxpayers are required to follow before proceeding with their complaints to the Tax Ombud.  To date, this does not appear to have taken place.

In terms of the TAA, the Tax Ombud may review any issue falling within his or her mandate on receipt of a request from a taxpayer.  It must be noted that the Tax Ombud may not investigate a matter that arose more than one year before the day on which the Tax Ombud is appointed, unless the Minister requests the Tax Ombud to do so. 

Section 18 of the TAA provides that the Tax Ombud may determine how a review of the taxpayer’s complaint is to be conducted and determine whether a review should be terminated before completion.

In reviewing the taxpayer’s complaint, the Tax Ombud must consider such factors as the age of the taxpayer’s request or issue, as well as the amount of time that has lapsed since the taxpayer became aware of the problem and the nature and seriousness of the issue, and, importantly, whether their request was made in good faith, as well as consider the findings of other redress mechanisms with respect to the taxpayer’s request.

Where there are compelling circumstances that the Tax Ombud may consider the taxpayer’s request for assistance, particularly where the taxpayer‘s request raises systemic issues, or by exhausting the other complaint resolution mechanisms within SARS will cause undue hardship to the taxpayer, or exhausting the complaint resolution mechanisms is unlikely to produce a result within a period of time that the Tax Ombud considers reasonable.

In terms of section 19 of the TAA, the Tax Ombud is required to report directly to the Minister and submit an annual report to the Minister of Finance within 5 months of SARS’ financial year and submit a report to the Commissioner quarterly or at other intervals as may be agreed by the Commissioner and the Tax Ombud.  Importantly, the annual report prepared by the Tax Ombud must be tabled in the National Assembly and, thus, the office of the Tax Ombud is subject to parliamentary oversight.

The Tax Ombud is required to resolve all issues falling within their mandate at the level at which they can be most efficiently and effectively resolved, and must, in achieving this objective, communicate with SARS’ officials identified by SARS.  It must be noted that the Tax Ombud’s recommendations are not binding on taxpayers or SARS.  This provision, set out in section 20 of the TAA, has been criticised by some commentators on the basis that the Tax Ombud lacks teeth and that the recommendations of the Tax Ombud will not necessarily be followed by SARS.  

However, internationally, the office of the Tax Ombud does not have the power to compel the revenue authority to adhere to the recommendations made by the Tax Ombud.  This is particularly true in the case of the Tax Ombudsman in Canada, the Taxpayer Adjudicator in the United Kingdom and the Taxpayers’ Advocate in the United States of America.  

The Tax Ombud does not operate as a court of law and therefore does not have the power to issue binding decisions or deliver judgment on a matter, as is the case with the Tax Court or other courts in South Africa.  The Tax Ombud is required to review complaints received from taxpayers and to facilitate the resolution thereof by engagement with the taxpayer and SARS.

It is interesting to note that, during June this year, Canada’s Tax Ombudsman and Minister of National Revenue jointly announced the addition of a new right to the Canadian Taxpayers’ Bill of Rights to protect taxpayers wishing to complain about the Canada Revenue Agency without fear of reprisal.  This right was inserted as a result of Canadian taxpayers being afraid to invoke their rights as taxpayers and lodge complaints with the Tax Ombudsman.  This right should go some way in addressing this concern.

When complaints are lodged against the Canada Revenue Agency, that Agency may, depending on the outcome of a complaint, give further reasons for decisions, correct a misunderstanding, omission or oversight, offer an apology to a taxpayer or make changes to a policy or procedure or make changes to systems or applications, review its service standards or consider further staff training to prevent recurrence of problems in the future. 

Insofar as the Taxpayers’ Adjudicator is concerned, that office can request Her Majesty’s Revenue and Customs to apologise to a taxpayer and also to meet additional costs which a taxpayer has incurred as a direct result of HMRC’s mistakes or delays, to reimburse taxpayers for costs such as postage, telephone calls or the costs of professional advice. 

Alternatively, the Taxpayers’ Adjudicator may require the HMRC to make a small payment to a taxpayer to recognise any worry and distress suffered by that taxpayer.  It is unfortunate that the Tax Ombud in South Africa does not currently have the statutory power to direct that SARS should reimburse a taxpayer for costs caused as a result of SARS’ inefficiencies. 

In addition, the Taxpayers’ Adjudicator’s website indicates that the HMRC has accepted all of the recommendations made by the Adjudicator, even though the Taxpayers’ Adjudicator’s office has no legal basis on which to require HMRC to adhere to its recommendations.

It is hoped that the creation of the office of Tax Ombud will go some way in alleviating the frustrations currently experienced by taxpayers in their dealings with SARS and that this office will be fully functional shortly.

Dr Beric Croome is a Tax Executive at Edward Nathan Sonnenbergs Inc. This article first appeared in Business Day, Business Law and Tax Review November 2013. Image of Minister of Finance Pravin Gordhan from www.treasury.gov.za

Contact Details for Tax Ombud: South Africa

South Africa's Tax Ombud is open and accepting complaints.

Tax Ombud: South Africa

Contact Details 

South Africa's Tax Ombud is open and accepting complaints.

The Tax Ombud's office can be contacted at

Call Centre: 0800 662 837

Fax: (27) 12 452 5013

WEBSITE: Office of the Tax Ombud

Email:  office@taxombud.gov.za  

On-Line Complaint Form on the "contact us" page

The physical address is: 

Office of the Tax Ombud
Menlyn Corner
2nd Floor
87 Frikkie de Beer Street
Menlyn
Pretoria
0181

The Tax Administration Act and Taxpayers' Rights

INTRODUCTION

The Tax Administration Act, No 28 of 2011 (‘TAA’), was promulgated on 4 July 2012 and took effect on 1 October 2012, except for certain specific provisions dealing with the imposition of interest payable to the Commissioner: South African Revenue Service (‘SARS’) by taxpayers and also by the Commissioner to taxpayers.  The TAA provides that, once the new interest rules take effect, interest will be compounded on a monthly basis, both in respect of interest payable by a taxpayer on the late payment of tax, and also in respect of refunds payable by SARS to taxpayers.

The TAA was enacted to regulate the administrative provisions of all tax Acts administered by the Commissioner: SARS.  In preparing the legislation, the Commissioner consulted extensively, seeking input on the legislation, with a view to ensuring that its provisions comply with the Bill of Rights contained in the Constitution of the Republic of South Africa, Act 108 of 1996, as amended (‘the Constitution’). 

TAX OMBUD

The TAA creates the legal framework for the creation of the Tax Ombud in South Africa.  SARS has indicated that the Tax Ombud will follow the model adopted by the United Kingdom in creating a Tax Adjudicator’s Office, and the Tax Ombud’s Office in Canada.  The legislation provides that the staff of the office of the Tax Ombud must be employed in terms of the SARS Act, and will be seconded to the office of the Tax Ombud from SARS.  The TAA requires that the Tax Ombud be appointed within one year from 1 October 2012.  The Minister of Finance has indicated that it was intended to appoint a Tax Ombud before the end of 2012.

The mandate of the Tax Ombud, is to review and address complaints by a taxpayer regarding a service or a procedural administrative matter.  The Tax Ombud must review a complaint lodged by a taxpayer and resolve it either through mediation and conciliation, and must act independently in resolving taxpayers’ complaints.  The Tax Ombud is required to follow informal, fair and cost-effective procedures in resolving taxpayers’ complaints.  The creation of the Tax Ombud is to be supported in that it creates a mechanism for complaints to be dealt with by a formalised procedure, despite the fact that the Tax Ombud may be located within the SARS structure. 

Section 17 of the TAA 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 TAA 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 be the matter be escalated to the SARS Service Monitoring Office.  Section 18 of the TAA 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.

The Tax Ombud has a duty to submit reports to Parliament on an annual basis, and to identify those issues which are causing problems for taxpayers, and it is hoped that this will ultimately enhance tax administration in South Africa and reduce the administrative burden faced by taxpayers.

CRIMINAL INVESTIGATIONS

The TAA also seeks to ensure that taxpayers’ rights are protected where a taxpayer faces a criminal investigation.  The Act requires that audits and criminal investigations are separated, ensuring that the rights of an accused under the Constitution are protected.  This was previously not properly dealt with under the provisions of the Income Tax Act or other fiscal statutes.

SEARCH WITHOUT A WARRANT

One power contained in the Act that has attracted much comment is SARS’ power to conduct a search-and-seizure operation without a warrant to protect documents from imminent destruction by taxpayers.  Previously, SARS could only search a taxpayer’s premises and seize documents when authorised to do so by a warrant issued by a court in terms of section 74D of the Income Tax Act.  

Section 63 of the TAA provides that a senior SARS official may, without a warrant, exercise the powers contained in section 61 of the TAA, which regulates the search of premises and seizure of documents.  It is intended that the search of premises without a warrant should only take place in exceptional circumstances, but there is always the concern that the power may be abused.  It is appropriate to point out that seventeen other statutes in South Africa confer on state organs a similar power to conduct search-and-seizure operations without a warrant.  It remains to be seen if this part of the TAA will face a Constitutional challenge at some point.

SARS AUDITS AND FEEDBACK FROM SARS

Previously, taxpayers experienced frustration in dealing with SARS, in that a letter of inquiry would be received from SARS and the taxpayer would submit a response thereto, and sometimes many months, and in some cases, unfortunately, even years, would pass before the taxpayer received any indication from SARS as to whether the inquiry or audit was completed, or, alternatively, what adjustments were to be made to the taxpayer’s assessments.  

Fortunately, the TAA contains a provision whereby SARS must advise a taxpayer as to the status or progress of an audit conducted on their affairs.  There was, previously, no such provision under the other fiscal statutes.  In accordance with section 42(1) of the TAA, the Commissioner was required to release a Public Notice setting out the details and processes relating to the manner in which taxpayers should be kept informed of audits conducted by SARS.  

Under Rule 2 of the Public Notice, dealing with keeping taxpayers informed, a SARS official responsible for an audit instituted before but not completed by the commencement date of the TAA, or instituted on or after 1 October 2012, must provide the taxpayer subject to audit with a report indicating the stage of completion of the audit.  

Where the audit started before the commencement date of the TAA, the Commissioner must provide feedback within 90 days of the TAA’s commencement, and within 90 day intervals thereafter.  Where SARS instituted an audit on or after 1 October 2012, the report must be submitted within 90 days of the start of the audit, and within 90 day intervals thereafter until the audit is concluded by SARS.

The Commissioner is required to advise the taxpayer as to the current scope of the audit, the stage of completion of the audit, and relevant material still outstanding from the taxpayer.

It is hoped that the Commissioner: SARS will adhere to this requirement, thereby alleviating the frustration that occurred in the past, that taxpayers subject to an audit would hear nothing from SARS for a long period of time and then suddenly be requested to supply additional information within a very short period of time.

Previously, the Commissioner would also not advise a taxpayer as to when an audit had been completed, particularly, when no adjustments were made in the calculation of the taxpayer’s taxable income.  Since the commencement of the TAA, it would appear that SARS is now advising taxpayers that an audit has been completed and that no adjustments are being made in the calculation of taxable income.

GROUNDS OF ASSESSMENT

Where, however, the audit identifies amounts which SARS wishes to subject to tax, it is necessary that SARS advises the taxpayer thereof, and also furnishes the grounds or reasons for the assessment issued to the taxpayer.  The Commissioner is required to furnish the grounds of an assessment within 21 business days of the assessment being issued to the taxpayer.  

Previously, the taxpayer had a right to request reasons for assessments issued by SARS, but no provision was contained in the Income Tax Act compelling SARS to issue reasons within a specified period after the issue of an assessment.  The TAA therefore improves the position for taxpayers in this regard.

VOLUNTARY DISCLOSURE PROGRAMME

The TAA also contains a permanent voluntary disclosure programme whereby taxpayers can approach the Commissioner to rectify pervious defaults under any fiscal legislation, other than customs and excise.  If taxpayers have failed to comply with their obligations under the fiscal laws of the country, they are, therefore, entitled to rectify those defaults under the framework contained in the TAA.  

Unfortunately, the provisions of the Voluntary Disclosure Programme contained in the TAA are not as attractive as that contained in the Voluntary Disclosure Programme and Taxations Laws Second Amendment Act, No 8 of 2010.  This is by virtue of the fact that, under the TAA, taxpayers will remain liable for interest due to SARS, and, depending on their particular circumstances, may remain liable to an understatement penalty ranging from 5 to 10%.

OBJECTIONS TO ASSESSMENT

The TAA also amends the time frame within which taxpayers need to object to an assessment.  Previously, a taxpayer was required to submit an objection within 30 days after the date of the assessment, which was defined in the Income Tax Act as the due date of the assessment.  This was typically a date some time after the date on which the assessment was issued.

Under the TAA, the objection must now be lodged within 30 days of the date of issue of the assessment, which generally means that an objection must be lodged earlier than what would have been the case under the Income Tax Act. 

TAX CLEARANCE CERTIFICATES

The Income Tax Act previously contained no procedure dealing with the issue of tax clearance certificates applied for by taxpayers.  The TAA now contains specific provisions regulating the manner in which tax clearance certificates may be applied for and issued by the Commissioner.  The TAA requires that SARS must issue or decline to issue the tax clearance certificate within 21 business days from the date that the application is properly filed.  Unfortunately, it would appear that, historically, SARS did not issue tax clearance certificates promptly, and it is hoped that the new statutory provisions in the TAA will be complied with.

CONCLUSION

The TAA contains many provisions with which taxpayers are familiar, but also refines and modifies a number of provisions which were contained the various fiscal statutes and introduces various new provisons.  It is important that taxpayers and SARS officials alike are aware of the provisions of the TAA so as to ensure that the provisions of the TAA are complied with.  In drafting the TAA, the Commissioner was sensitive to the rights of taxpayers, and sought to ensure that the TAA does not infringe on the rights of taxpayers.  

Certain of the provisions contained in the TAA referred to above do enhance the protection of taxpayers’ rights by way of new provisions which were not found in the other tax Acts.  It remains to be seen, though, whether the Commissioner is geared to providing taxpayers with regular feedback on the status of audits, and to deal properly with the other provisions contained in the TAA.

*Dr Beric Croome is a Tax Executive at Edward Nathan Sonnenbergs Inc.  This article appeared in the January 2013 issue of TaxTalk newsletter.