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Taxpayer rights get boost from the courts

Courts are finding in favour of taxpayers where Sars hasn’t followed due processes.

Several court decisions have clearly illustrated that taxpayers’ rights can and will be protected when the South African Revenue Service (Sars) does not follow due process.

In a recent unreported case – on the validity of a tax audit process – the tax court reversed an entire assessment because Sars did not meet the requirements of the Tax Administration Act (TAA).

Beric Croome, tax executive at ENS, says the case serves as a “useful reminder” of taxpayers’ rights when Sars conducts an audit into their affairs.

In this particular case Sars disallowed a taxpayer’s farming expenditure of R1.7 million, and his retrenchment payment of R7 million was taxed as normal tax and not at the special rate applicable to retrenchment lump sums.

The taxpayer objected to the new assessment and when the objections were disallowed the taxpayer, a former CEO of a company which retrenched more than 30% of its workforce, went to court.

The taxpayer only realised he was audited when he received Sars’s statement of grounds for assessment. The court found Sars’s reliance on a procedurally flawed audit, conducted without the taxpayer’s knowledge, “impermissible”.

The breach of the legality principle was further compounded by Sars’s failure to comply with the TAA which requires Sars to provide the taxpayer with a report on the status of completion of the audit. The taxpayer also did not receive a letter of findings following the completion of the audit.

Patricia Williams, tax partner at Bowmans, says Sars appears to be of the view that a letter of findings is only required when a formal audit is conducted and not with verifications.

“Sars is, however, wrong that a letter of findings is not necessary in terms of a verification,” she says. The Promotion of Administrative Justice Act requires any administrator (which includes Sars) to give a person adequate notice of the nature and purpose of proposed administrative action, and a reasonable opportunity to make representations.

“In my view Sars must give taxpayers an opportunity to respond to a proposed assessment, in terms of the Promotion of Administrative Justice Act, whether or not this obligation is explicitly contained in the Tax Administration Act.”

The purpose of a letter of audit findings is to give taxpayers advance warning of a potential tax assessment and the opportunity to respond to the findings.

Williams says there are some common violations in relation to audits or verifications.

These include repeated requests for verification, without Sars actually applying its mind to the documents submitted by the taxpayers; extended or repeated audits, which deny taxpayers the right to finality; overly broad requests for information or documentation; issuing assessments based on extremely tenuous legal arguments, seemingly in an attempt to postpone a taxpayer’s entitlement to a tax refund; and providing inadequate reasons for an assessment.

Another frustration for taxpayers is Sars not asking for the right documents, and then arguing that the taxpayer did not meet the burden of proof.

She says this is very much like Sars saying: “I asked you for nothing; and the nothing that you gave me does not convince me you are entitled to a tax deduction, so I will assess you.”

The South African Institute of Tax Professionals (Sait) said in an earlier submission to National Treasury that many taxpayers are receiving inquiries from Sars without understanding the reasons for the inquiry. They are often confused as to what Sars is really looking for.

“The net result is a prolonged guessing game, leaving many taxpayers apprehensive caused by uncertainty.”

Keith Engel, CEO of Sait, says an underlying problem is Sars’s reluctance to engage with taxpayers directly to clarify their matters.

“At some point, Sars institutionalised an overly rigid system of engagement to prevent corruption. The unfortunate side-effect has been a loss of open-dialogue, resulting in the guessing game causing so much anxiety.”

Sait recommended an amendment to the Tax Administration Act which makes it compulsory for Sars to comply with the requirement to provide taxpayers with a letter of audit findings.

It said the section should be applicable not only to any “audits”, but also to any verifications, or any other process of which the result is a potential assessment being raised.

“The taxpayer should be entitled to receive a letter of findings setting out the potential adjustments of a material nature, and 21 business days within to respond, before any additional assessment is issued by Sars,” Sait said.

The submission was made for possible inclusion in the annexure in the 2018 budget which deals with additional tax policy and administrative adjustments.

“Instead, there were virtually no taxpayer rights issues in the budget. This is disappointing, but unsurprising given Sars’ stance on taxpayer rights over the last few years,” notes Williams.

The only reference to “taxpayer rights” in the budget related to the proposal that a taxpayer has to be notified at the start of an audit as part of efforts to keep all parties informed.

Croome says if Sars fails to adhere to its statutory obligations the court will set aside any additional assessments. It is more likely than not to also award costs against Sars for not complying with the law.

In the case of the former CEO, the court ruled that Sars had to pay the cost of his appeal.

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Because of its tax revenue shortfall, SARS has no option but to be as aggressive as possible in its search for income. It has always been prepared to take a chance against the threat of legal action, banking on the time and effort needed to defend or advance a claim. Nothing has changed in this regard, although this article is a nice reminder that this country still has Institutions we can rely on in the long run.

Blêddie jakkalse. Don’t get me started.

“These include repeated requests for verification, without Sars actually applying its mind to the documents submitted by the taxpayers; extended or repeated audits, which deny taxpayers the right to finality; overly broad requests for information or documentation; issuing assessments based on extremely tenuous legal arguments, seemingly in an attempt to postpone a taxpayer’s entitlement to a tax refund; and providing inadequate reasons for an assessment.”

That`s it! Our experience exactly! Now who can make a difference?

Ditto! 🙂

I recently had a BIG surprise!!

2013/4 SA Tax year – paid about R4m Prov tax
Queried my tax advisor – but was told that was due and payable – payment made. Forgot about it.
About 3 weeks ago, SA bank manager call about R815 000 payment from SARS in my nominated account – tax advisor queries this and much to his and my surprise – REFUND FROM SARS without any query from our side.
Miracles till happen – even in SARS!!

SARS this, SARS that….
Let’s not forget that all SARS’ actions are the results of individuals, beginning with the Commissioner.

Somebody has programmed their computers to run a bad website, to generate queries (often boilerplate letters requesting non-existant information, such as asking for IRP5 certificates for self-employed individuals paying their own medical aid).
Somebody has taken the strategic decision to delay VAT refunds and individual staff within SARS take that decision on specific cases.

While SARS is cracking down on non-compliant and naughty taxpayers and practitioners, why do its staff have any duty to act responsibly? Why do the guilty get away with it?

Wonder if the Zumas and Guptas get the same run around or are they merely left alone to salt money offshore to countries who don’t have judicial arrangements with this country

This tax thing is very frustrating,I received a call from SARS stating that I have funds due to me however I needed to submit my IRP5 for 2016 and my medical aid certificate and I did just that,oh jah they said I was under audit so when I phoned SARS for a follow up I was told that I owe SARS money because I didn’t submit everything they required.

I understand this issue to be what Taleb is saying in his latest book. We have absolutely no tax-use morality by authorities because they can waste taxes without any accountability or fear of consequences. If they were held responsible they would have ”skin in the game” and use tax proceeds diligently and efficiently. Hence, the system is abused because SARS – under pressure because of government overspending, wastage and compromised economic growth prospects – can use heavy-handed tactics on the ordinary tax-payer. Until Government can show respect for the tax-payer and practice tax-use morality any demands on tax-payment morality is hypocrisy. Furthermore, we get zilch from the government so in essence I am basically funding corruption, incompetence and exorbitant salaries. The system is on track to fail unless we vote in responsible leaders but I don’t see enough to make me think the system will change.

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