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Tax disputes gathering dust

But there are ways to avoid disputes with Sars.
In some instances Sars’s systems don’t reflect the information submitted by the taxpayer through eFiling. Image: Moneyweb

South African tax legislation allows taxpayers the right to dispute an assessment or any decision that is subject to objection and appeal. However, several issues stand in the way of quick resolution.

In 2020 the South African Revenue Service (Sars) raised 4.34 million personal income tax returns, resulting in more than 520 000 (12%) objections.

This is higher than the international norm and Sars has committed itself to bringing the rate of dispute to within “appropriate norms”.

Sars says many of the disputes arise because of the lack of documentation provided during the verification or objection process. This delays the resolution of disputes and is primarily responsible for delays and the ageing of appeals in particular.

Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC, adds that the loss of expertise at Sars resulted in certain processes functioning less than optimally. The eFiling system also does not assist in resolving many issues to satisfaction.

Avoiding disputes

The lack of skills and improvements to the eFiling system have received attention since Sars Commissioner Edward Kieswetter and his new team started with the rebuilding of the tax agency.

Rossato, who also heads the Tax Administration Act working group of the South African Institute of Taxation, says there are ways to avoid a dispute process with Sars.

“In many instances Sars auditors will request additional information from the taxpayer, who will either not respond or respond with incomplete information.”

She says by the time the matter reaches a legal official in the dispute phase, the taxpayer will offer the information required to support their dispute. “If it was supplied from the start, there would never have been a dispute.”

If taxpayers do not understand what is required of them they should ask. Having said that, Rossato adds that in many instances Sars does not communicate effectively, or its systems do not reflect the information that has been sent to them through the eFiling system.

Many disputes could be put to bed if communication was faster and better.

There have been instances where taxpayers waited months for an answer about what was required of them. Although there are thousands of unresolved disputes in the system, not all of them are active cases on their way to the tax court. Cases that could have been resolved faster “upstream” are causing “downstream” blockages, she says.

Sars urges taxpayers to provide accurate documentation as early as possible in order to hasten the resolution of a dispute.

Understand the processes

In many instances the lack of understanding leads to taxpayers or even their tax practitioners following the wrong process. According to the Sars guide on the dispute resolution process, if an assessment contains errors, whether caused by Sars or the taxpayer, there is no need to object against the assessment. The taxpayer must submit a request for correction.

Rossato says there are different procedural remedies available, but they are not always easy to understand without some experience of the dispute resolution process.

Sars notes in its guide that taxpayers are required to pay the tax in dispute before the dispute is finalised or resolved. The obligation to pay is not ‘automatically’ suspended by an objection or an appeal.

The obligation to pay can only be suspended by Sars on request by the taxpayer.

Payment may be suspended depending on the compliance history of the taxpayer, the amount of tax involved, the risk of dissipation of assets during the payment suspension, or whether there is fraud involved in the origin of the dispute.

Suzanne Smit, fiduciary and tax consultant at Fidelis Vox, says should taxpayers feel there is no end to resolving their dispute Sars they can apply for a default judgment (final relief) under Rule 56 of the Tax Administration Act.

The rules set out the dispute resolution timelines and if there is non-compliance by either the taxpayer or Sars, the aggrieved party may give notice to the non-complaint party to comply within 15 days, failing which they can apply to the tax court for a final order in their favour.

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SARS is despicable.

I always drag my feet as much as I can, as a matter of principle.

This makes SARS seem reasonable for the most part in the face of tax filers that are basically incompetent. My experience has been the complete opposite.

I have issued one dispute over a denied disclosure of capital loss. SARS said the statement of account with P/L clearly visible issued from the FI was not good enough. They wanted all original purchase and sale certificates for the entire tax year. This can number in the 100s from various service providers.

This year I have filed for home office expenses as my company got rid of their office space. We worked remotely from home anyway for the whole pandemic. They asked me for, and I quote “proof that I performed my duties in the set aside room”, not that I worked from home as verified by my company, that I was in the room?!?!?. How exactly do I prove that.

Do either of these sound like reasonable criteria to resolve a dispute?

My thoughts exactly on the slant of the article. It implies that it is mostly the taxpayer’s fault. In contrast, I don’t remember where SARS has responded within the time allowed in for in the rules promulgated under section 113 of the TAA. Most of the objections or appeals have only been dealt with once we raised a complaint and in some instances approached the tax ombud. In some instances that was after waiting for years for a response from SARS.

The problem with SARS is that they are so busy chasing taxpayers for money that they have neglected the basic admin required to keep the system functioning. That is reflected in their e-filing system where it is sometimes necessary to try different browsers to print forms in the hope of finding one that actually works.

SARS`s only concern is to milk the middle-class (and super rich) taxpayers to bolster revenue. They should not forget that these tax payers are the geese that lay the golden eggs!

“the loss of expertise at Sars resulted in certain processes functioning less than optimally” – a red flag right there and also seen in all SOEs and Government departments.

That dispute form is probably half the reason for the backlogs. Most taxpayers could describe their objection in half an A4 page far better that that form caters for.

I normally attach a letter setting out the full grounds of objection / dispute. Especially with an objection because you are limited to the ground of objection if the matter proceeds to court. I then do a brief summary of the ground on the form and refer to the letter.

What does one do if you file a+b-c, SARS then assessed x+y-z, you object, they pay you the refund per assessment, but never react to the disputes?

I had offshore capital gain and for the first time this year THEY deducted a very old domestic carry forward capital loss. I didn’t think they would do it as never done it before when I had foreign capital gains. So nice surprise there but provisional tax way overpaid.

Then they did something weird on my RA. They gave zero RA deduction as said that I have no remuneration yet I had domestic consulting income, foreign investment income and foreign capital gain. Does that 27% RA limit not include foreign taxable income? Surely my domestic consulting income must qualify.

In normally summarise my grounds of objection in the form and refer to a letter where I set out the grounds in detail. Not that SARS ever reads these. It is important to set out all grounds because you are limited to those in the event of the matter going to court.

Our tax system is far too complicated for the average Joe salary earner and should be simplified. Travel allowances, medical aid credits, provident fund vs pension fund, RA’s etc. They should invest time into making it easier to understand for taxpayers and therefore to comply. Just look at the Section 12T tax-free investments savings plan. So many rules you need to pay someone to explain it to you. Just say the first R500,000 you save is tax-free, then people will start saving.

Love all the comments let me add to them.
My daughter traded cryptocurrency last year. She could not fill in employment zero/unemployed earned income elsewhere plus interest.
So we entered employed but unemployed for the full 12 months. Then we tried cryptocurrency trading code. SARS decided profit was zero and wouldn’t allow us to fill anything in.
No big deal as she was below the threshold……
However on a much bigger issue SARS has
1. Stopped paying back VAT refunds even when they audit and accept the outcome
2. Payment of PAYE refunds
3. Calling me if my business PAYE is even 2 days late
4. Sending letters of demand on business entities dormant for the past 10 years

Desperate times

End of comments.

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