While South African taxpayers have rights in law, the complexity of tax legislation and the South African Revenue Service’s increasingly assertive approach to enforcement are making those rights harder to exercise in practice.
When SARS oversteps the boundaries, smaller entities and individuals particularly find themselves ill-equipped to take on the revenue-collection authority. There are several avenues for recourse, including SARS’s internal complaints process and the Office of the Tax Ombud.
However, these mechanisms can be time-consuming, says Nico Theron, founder of Unicus Tax Specialists SA. When a person’s livelihood or a business’s sustainability is under threat, an immediate and decisive response is required.
“Exercising your rights as a taxpayer limits you to the provisions in the Tax Administration Act (TAA), which is a long, drawn-out process, and SARS uses that to their advantage,” says Ranjay Sewpursadh, the owner of Ranjay Sewpursadh & Co.
“Taxpayers normally leave their tax affairs to accountants and don’t really understand legislation or don’t want to understand tax legislation […]. Taxpayers fear SARS and sometimes don’t want to challenge SARS,” he adds.
Theron notes that not all decisions and assessments are subject to objections and appeal. That does not mean that the taxpayer cannot fight back.
“You can fight back, but it needs to be done in a structured, disciplined, and informed way, or else you are in for an expensive hiding,” Theron says in a recently published tax insight.
If SARS does not respond to a valid objection within the prescribed period, for example, taxpayers can threaten with a default judgment court application.
SARS then has 15 days to remedy the situation, or the matter proceeds to court. “That is a powerful provision, but the taxpayer must have the technical knowledge when and how to rely on it,” he adds.
Another example is where SARS appoints third-party agents such as banks to collect tax owed to it. SARS does have the power to appoint the bank as its agent.
However, when the taxpayer has filed a suspension of payment request or when there is a suspension of payment in place, the threat of collection or the actual collection is prohibited, says Theron.
Sewpursadh refers to the recent judgment in Devland Cash and Carry (Pty) Ltd v Commissioner for SARS, where the company’s suspension-of-payment request was denied. Devland then approached the High Court in Johannesburg to review SARS’s decision and requested the full record of information on which the decision was based.
SARS relied on the confidentiality provisions in the TAA, arguing that if it disclosed its decision-making process, it would jeopardise the effectiveness of their audits.
The High Court disagreed and found in favour of the taxpayer.
SARS’s rights
SARS may raise an estimated assessments when a taxpayer fails to submit a tax return, or submits incorrect or inadequate information, or fails to respond to more than one request for relevant material.
In practice, says Sewpursadh, SARS obtains information from third parties such as financial institutions which is supposed to be used for risk analysis purposes, but is included in gross income under an estimated assessment.
Although SARS has the right to issue an estimated assessment, taxpayers have a right to know what information was used as a basis for the estimated assessment.
The Devland judgment has put SARS officials in a spot, he says.
“We are seeing more estimated assessments being raised, and the taxpayer is left to lift the burden of proof,” says Sewpursadh. This requires taxpayers to gain a better understanding not only of their rights, but also of the law.
In terms of the TAA, any disputed assessment must follow Chapter 9, which governs the dispute resolution process. This covers objections, appeals, or the alternative dispute resolution process. Taxpayers who are not satisfied with the outcomes of these processes can approach the tax board or tax court.
Legislative changes
Dawie Roodt, chief economist at the Efficient Group, proposes stronger legislative changes to support taxpayers. “For example, if SARS does not respond to a complaint within two weeks, then it must be accepted that the taxpayer is correct.”
Another suggestion is the streamlining of tax recordkeeping obligations where SARS loses the right to reassess a taxpayer if it fails to act within a defined timeframe.
Theron believes the increased assertiveness in enforcement from SARS reflects deeper systemic pressures arising from National Treasury’s demand for increased tax revenue to service high debt costs and other government expenditure.
Taxpayers are increasingly looking for ways to escape what they perceive as an excessive tax burden. This ranges from limiting income-generating activities to aggressive tax planning and, in some instances, illegal tax evasion, says Roodt.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The article is intended for general educational purposes and does not constitute financial advice, investment advice, legal advice, or a regulatory compliance opinion.
