INGÉ LAMPRECHT: Earlier this month the South African Revenue Service announced that it collected R986 billion of revenue in the 2014/15 tax year, around R7.4 billion more than the revised estimate. Against a background of dwindling economic growth Sars has stepped up its revenue collection efforts and improved efficiencies. But what rights do taxpayers have? Today I discuss this question with tax executive at ENSafrica, Dr Beric Croome.
Beric, as an individual taxpayer my employer pays tax on my behalf to Sars and every year I fill in my eFiling form declaring all my income and expenses. Besides the information provided by my employer and myself, what other information does Sars have access to?
BERIC CROOME: Ingé, under the Tax Administration Act Sars requires financial institutions and a number of organisations to submit what is referred to as third party returns to Sars, containing information pertaining to the tax paid to Revenue. Now that will range for example – it will be interest earned on bank accounts, so the banks would have to issue what is traditionally referred to as an IT3, which will contain the interest earned on bank accounts, the balances and that will go electronically from the bank to Revenue and that obviously has got the taxpayer’s particulars on that. Your contributions to retirement annuity funds, my understanding is… and I think the requirement… there was a notice issued setting out all of these returns that have to be submitted by the different pension funds, institutions, etc. So Sars is getting a lot of information, it ranges from retirement annuity contributions, medical aid contributions and other deductions, the sales of, for example unit trusts, there are returns there which would reflect the income on the unit trusts and also the realisations on disposal of the unit trusts. So all of that information is going electronically from the institution to Sars to then crosscheck and ensure that the taxpayer is reflecting that in their return.
INGÉ LAMPRECHT: Why is it important for Sars to have access to this information?
BERIC CROOME: It’s facilitating data matching to ensure that taxpayers are reflecting all the income that they receive from different sources, so it’s really to ensure compliance. If I go back a few years all of this was sort of happening manually. I worked at Revenue many years ago and I remember the banks would send in all these printouts of interest received by people, at that stage it might have just had a name on and an ID number possibly and Sars would then have to physically try and match that manually to taxpayers on the system. It’s now going electronically, so that process of crosschecking information is a lot quicker and Sars will then often identify that taxpayers have not disclosed interest. Sometimes what we see, for example, is we’ve had difficulties with a client, you submit a tax return, you show interest of
R10 000, Revenue comes back and says but we actually know about more interest. What’s happened? The client might have sold a property and there was funds held in the attorney’s trust account and interest was earned on that and that’s forgotten. That’s not deliberate, it’s just an oversight but Sars is getting that information and will crosscheck it to ensure that it’s properly disclosed; thereby ensuring that income is properly reflected for tax purposes.
INGÉ LAMPRECHT: I’d like to move on to the audit process, in the Sars annual report for 2014/2015 there’s reference to quite a number of audits the Receiver conducted during the year on high net worth individuals, trusts, large and small business, tax practitioners and also the construction industry. These audits can take quite some time, what rights do taxpayers have in terms of communication and maximum completion times when audits are conducted?
BERIC CROOME: Ingé, you are absolutely right about the volume of audits. Sars will in its strategic plan also identify areas that they will audit, where they see there is risk. There is a slight improvement today, before the Tax Administration Act came in there was no requirement on Sars to report on the status of an audit. So what could happen is the taxpayer is required to submit information, they send it in to Revenue and you hear nothing for two years and then suddenly Revenue comes back and says please supply further information within ten days, which is unreasonable. What we now have is in the Tax Administration Act there’s a requirement that Sars must report to the taxpayer on the status of the audit every 90 days and they’re supposed to inform the taxpayer as to the status of the audit, what information is outstanding and try and give some indication of how long it may take to resolve or finalise the audit. Now when you see those reports it sometimes is useful because it might help you understand what information is still required to bring it to an end, the problem often is you don’t see those reports, some officials will send them out and in other cases you just get nothing. The difficulty for the taxpayer in that case is there is nothing in the law that actually sanctions Sars where they don’t give that report and that’s a deficiency.
INGÉ LAMPRECHT: In terms of the maximum completion times – does the law say anything about that?
BERIC CROOME: Unfortunately there’s nothing specific in the law on that. It is difficult I think to prescribe a fixed period because the affairs of one taxpayer versus another are so different. You do obviously have the overarching provision in the Constitution of fair administrative procedure, a taxpayer is entitled to finality and should be treated fairly under the right to administrative justice. But I can’t say to you that there’s a definite time period within which the audit must be conducted. If anything it should be conducted within a reasonable period but too often many audits take too long.
INGÉ LAMPRECHT: What about refunds due to taxpayers, do refunds need to be paid within a certain time?
BERIC CROOME: The Tax Administration Act doesn’t unfortunately specify any period within which refunds should be paid. What is interesting though is there was the Sars Service Charter, which I think was first published in 2005 and the idea was that that document would be updated from time to time, and that set out the levels of service that taxpayers can expect from Sars. The Sars website has a reference to that document but if you try and find it on there it’s gone. What the Service Charter did say previously was, and I’m quoting from it, if a refund is due and owing to you we aim to process VAT refunds within 21 workings days of receipt, process income tax refunds within 30 working days from the assessment date, process 90% of all customs refunds within 30 working days of receipt and where a refund is subject to review you will be notified within 30 working days. They were trying to stick to that. In my experience currently we’ve seen too many refunds being delayed for very long periods of time and under the Tax Administration Act there is nothing specific you can say to Sars you’re in breach of the provision because there’s nothing that actually regulates it. The only basis to challenge Sars on that is to say it’s a breach of administrative procedure and you can then follow the process to get ultimately to the Tax Ombud.
INGÉ LAMPRECHT: Sars also has the power to draw outstanding taxes directly from the taxpayer’s bank account. In terms of the law what rights do the taxpayer have when money is drawn from the taxpayer’s account?
BERIC CROOME: That’s a difficult one, that’s referred to, previously it was Section 99 appointments or agent appointments, it’s now referred to as third party appointments. The law at the moment doesn’t require Sars to tell the taxpayer before the money is taken out of their account that they will take those funds out of the account. The way it works is there will be a tax debt typically that the taxpayer is indebted to Revenue, the taxpayer doesn’t pay in time, Sars should have sent out a demand for that and the next thing the taxpayer gets a notice from their bank to say funds have been paid to Revenue. Sars doesn’t have to at the moment inform the taxpayer that that’s about to happen, which I think is unfair. The other problem we also have is sometimes the taxpayer has a dispute with Revenue, they request suspension of payment and it goes into the organisation, you don’t get a response and the next thing Sars is taking money out of the account even though a taxpayer has asked for postponement of payment. Now that’s a contravention of the law because if a person requests suspension of payment that suspends the payment until a decision is made on that request. There are problems there because you can’t file those requests for suspension electronically. Sars is aware of it, my understanding is they are trying to modify the eFiling that you can actually make these requests online because at the moment it just goes into this void and you don’t get an answer, and they then proceed to collect the tax where they shouldn’t actually. So there are some problems there because the concern, clearly, is if Sars has made a mistake on an assessment and the next thing [that happens is] taking money out of the taxpayer’s account – that’s wrong. But the problem for the bank is if Sars gives an instruction to the bank to pay the money to Sars and the bank doesn’t pay that the bank is liable in its own capacity for those funds.
INGÉ LAMPRECHT: Would the taxpayer ever be entitled to earn interest on amounts owed by Sars?
BERIC CROOME: Typically where there’s a refund due to the taxpayer there is interest payable to the taxpayer. That interest is at 5.25%, which is fully taxable. Similarly if a taxpayer delays payment to Revenue there is interest payable but that’s at a higher rate non-deductible of 9.25%. So in principle where there is a refund due interest is payable.
INGÉ LAMPRECHT: Is there any recourse available for taxpayers if they believe the Receiver has treated them unfairly?
BERIC CROOME: There are the processes that are laid down dealing with complaints, my understanding is that that process is under review at the moment but the way it works at the moment is if someone is of the view that Sars has abused its powers or there has been a breach of administrative procedure the first port of call would be the local Receiver of Revenue office or to log a complaint with the call centre. If that doesn’t resolve the matter you are then required to elevate that complaint to what is referred to as the Service Monitoring Office, which is an office within Sars reporting to the Commissioner. That was started some years ago, at one time it was quite effective. In the last while that doesn’t seem to be as effective as what it was. If you then still do not get the thing resolved at what’s referred to as the SMO, the Service Monitoring Office, your port of call now today and he was appointed in October 2013 is the Tax Ombud and that office is there to assist taxpayers who have problems with Sars of an administrative nature, whether there has been abuse, undue delays, etc. There is a website which has got all the information on, there’s a copy of the complaints form and you’d have to submit that to the Ombud, they’d then evaluate the complaint and see whether they can deal with it. They typically will try and finalise it once it’s reached their office within I think it’s 15 working days. We have taken a number of complaints to that office and things have been resolved there. I have also received a letter of apology from Sars because of what went wrong, I think that was the second letter of apology in 30 years of practicing tax. So the Ombud to me I would urge people to use that office, it is working, it is fully functional and it is in my view fairly independent of Sars. The Ombud reports to the Minister of the Treasury and submits his reports to Parliament, so there is Parliamentary oversight. In fact, last year was the first report submitted by the Ombud, which dealt with a number of the issues you’ve raised, taxpayers having problems with Sars, the problem that he kept running into was fraudulent eFiling profiles, identity theft, problems with refunds, failure to provide feedback on audits, failure to provide reasons for an assessment that’s also often a problem. So where taxpayers have those sort of issues they have the right to go to the Ombud for assistance.
INGÉ LAMPRECHT: Dr Beric Croome is tax executive at ENSafrica.