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‘Taxpayer secrecy provisions contributed towards the loss of trust in Sars’

Taxpayers and tax practitioners believe that Sars ‘hides behind’ secrecy rules.
Jacob Zuma. Image: Shutterstock

The watershed judgment in which the South African Revenue Service (Sars) was given 10 days to reveal former president Jacob Zuma’s income tax returns for the years he was in office (2010-2018) was handed down a week ago, on November 16.

Moneyweb has discussed the judgment with Bowmans partner Patricia Williams and Keith Engel, CEO of the South African Institute of Taxation.

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Williams says “taxpayer secrecy provisions have been a material factor contributing towards the loss of trust in Sars” and that taxpayers and tax practitioners believe that Sars “hides behind” these rules.

She notes that Sars is mandated to “turn over evidence of criminal activities [not tax offences] to the relevant authorities … investigate tax offences, put together the relevant evidence and then refer the matters for criminal prosecution … collect all relevant taxes, including civil penalties and interest”.

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Williams says that while mainly compliant taxpayers are being audited by Sars, there is little public evidence that Sars has targeted “tax evaders and other criminals”.

Sars raises taxes on the basis of “technicalities” and “timing differences”, and “the impression is created that politically connected persons are for the most part “untouchable”.

Says Williams: “This judgment does not allow Sars to simply disclose any and all taxpayer information, and arguably does not yet soften the taxpayer secrecy provisions sufficiently. It is, however, a stepping stone towards the ‘transparency and accountability’ … [that] is experienced by taxpayers as being sadly lacking.”

‘Critical test’ for Sars

Williams further comments that Sars has engaged in “insufficient action” to restore public trust in it, and that its response to the judgment is a critical test of its “commitment to being transparent, accountable and trustworthy”.

She questions whether Sars will accept the judgment, which “allows for very limited disclosures in the public interest, and which paves the way to increased trust in Sars?”.

“Or is Sars going to use the legal system to try to block transparency and accountability?”

‘In the public interest’ requires clarity

Engel says this appears to be “an all or nothing judgment”, and that ‘in the public interest’ should be contextualised for future judicial precedence.

Engel points out that wealthy citizens do not want to have their wealth exposed in the media; they may be exposed to kidnapping risk and personal liability suites.

Stated differently, he says the existence of wealth alone should not be a trigger for public exposure.

He adds that the public has the right to know how their tax money is being spent, and whether an official is misusing public office. But why should the public know about who is evading taxes from private earnings or savings?

Confidential tax information must be carefully exposed and utilised, otherwise it can get out of control and be misused. The public has the right to know what government officials are earning, what their fringe benefits are, and whether they are receiving government contracts. But this should be legislated.

Engel says Sars is all-to-often perceived as solely going after the low hanging fruit, and not after the big tax evaders.

“The public’s patience has run out for [Sars] and government in general.”

The legal action against Zuma by the media stems from this frustration. 

The law as it stands

The Constitution recognises the right to privacy, right to freedom of expression (including freedom of the press) and freedom to receive or impart information or ideas, and the right of access to any information held by the state.

The Promotion of Access to Information Act (PAIA) is the instrument that provides the access, but prohibits tax information from being disclosed. This is reinforced by the Tax Administration Act (TAA).

PAIA does have a ‘public interest override’, which will allow sensitive information, but not taxpayer information, to be disclosed where the disclosure will reveal evidence of a ‘substantial contravention of, or failure to comply with the law’, and the public interest outweighs any harm that will come from disclosure.

Arguments put forward by the Media

The ‘media’ – in the form of the Financial Mail, the AmaBhungane Centre for Investigative Journalism organisation and journalist Warren Thompson – applied to the court to consider the constitutionality of the confidentiality of taxpayer information.

They requested Zuma’s tax records based on the allegations made by investigative journalist Jaques Pauw in his book The President’s Keepers, that:

  • Zuma was not tax-compliant while he was president, did not submit tax returns or pay any tax; the upgrades to his Nkandla homestead constituted a fringe benefit, he received donations from illicit sources, and a salary from a security company.
  • Zuma appointed Tom Moyane as the commissioner of Sars to undermine the enforcement capability of Sars and to stop Sars from prosecuting him for the non-payment of taxes.

The applicants contended that the prohibition on disclosing Zuma’s tax information infringes on their constitutional right to freedom of expression, and the freedom to receive and impart information.

Arguments put forward by Sars

Sars argued that:

  • The promise of confidentiality encourages tax compliance;
  • Confidentiality of taxpayer information is globally accepted; and
  •  South Africa would be in breach of international agreements that stipulate confidentiality of tax information if it disclosed Zuma’s tax records.

Judgment

The court found that:

  • There is no direct or factual evidence that the secrecy provisions compel taxpayers to disclose their affairs to Sars.
  • The limitations on the access to taxpayer information are not justified.
  • The ‘public interest override’ on the limitation of taxpayer confidentiality is justified and competent.
  • If taxpayer information is received under an international instrument, such as a Double Taxation Agreement, Tax Information Exchange Agreement, and the Convention of Mutual Administrative Assistance in Tax Matters, disclosure of this information could still be refused by Sars.

The court handed down an order that the relevant sections in the PAIA and TAA pertaining to the prohibition on disclosing taxpayer information are unconstitutional and invalid.

The court suspended the declarations of invalidity for two years “to enable Parliament to correct the relevant defects”.

Sars is to furnish Zuma’s tax returns for the years 2010 to 2018 by November 26.

In a press release dated November 18, Sars said it was considering its options.

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COMMENTS   1

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This is such brilliant opportunity for SARS:

Are you the “South African Revenue Services” or are you the “South African Robbers Society”? Your hand SARS make your decision.

Just remember that if you choose to further hide that convicted criminal’s dealings that you will see that confidentiality does not “encourage tax compliance”

My prediction is that they will appeal and prove that the criminal mafia is still in government. And thereby prove that we have reason to doubt their authority.

End of comments.

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