SARS is aggressively pursuing improved revenue collections from taxpayers. Key to this is a campaign to get taxpayers to comply with all tax laws. SARS has expanded its powers considerably and a High Court judge has called some of these powers “draconian”.
The main provisions of the new Tax Administration Act (TAA) are effective from 1 October 2012. They give SARS officials increased powers like search and seizure powers (without a search warrant) – SARS officials can arrive unannounced at your premises to ascertain the business being carried out, demand the identities of people working there and check whether the business is registered for tax.
What do the Courts say?
A recent High Court judgment, dealing with the pre-TAA powers of SARS, found that when SARS uses the powers given to it “checks and balances may be necessary to safeguard the rights of taxpayers”. In the case, SARS had asked the taxpayer to complete a lifestyle audit and, based on the information received from the taxpayer, R1.3 million in additional tax was levied. In terms of provisions of the Income Tax Act (which still apply until 1 October), Revenue may make an estimate of the tax owing if SARS is not satisfied with the information given by the taxpayer. Despite the fact that the taxpayer objected to the additional assessment, SARS obtained a judgment for the tax owed from a court. This it is able to do in terms of the Income Tax Act, which allows SARS to obtain a civil judgment against a taxpayer where monies are overdue. In obtaining this judgment, SARS, who are not (until 1 October) obliged to inform the taxpayer of this process, did not do so.
These events happened in 2005. In 2007, the taxpayer’s objection to the 2005 additional assessment was upheld as a SARS official had erroneously calculated the 2005 extra taxes. In 2010, the taxpayer applied for and was refused a bond by a bank, as the SARS judgment obtained in 2005 had not been rescinded. On application by the taxpayer, the South Gauteng High Court rescinded the judgment.
The judge used harsh language in his decision: the additional assessment from the lifestyle audit was performed in a manner which “suggests that suitably qualified or experienced persons were not engaged to perform the forensic analysis or accounting calculations. In the result their estimates were fundamentally flawed”. The fact that no SARS official pursued the taxpayer’s objection was “self-evidently incompetent”.
Has this judgment affected the TAA?
Several of the issues raised by the Court have been addressed in the TAA. SARS still has the right to issue additional assessments, but the taxpayer must be given a “statement of the grounds for the assessment”. Taxpayers are still required to pay tax even if there is an objection or appeal pending but the taxpayer may request that payment be suspended. A Senior SARS official may allow the suspension of the payment based on specified criteria. Finally, SARS may obtain a civil judgment against a taxpayer but must give the taxpayer ten business days’ notice of intention to apply for the judgment (except when satisfied that giving such notice “would prejudice the collection of the tax”).
SARS hasn’t diluted any of its powers but there is more even-handedness shown to taxpayers. SARS is obliged to apply its mind when making estimates, a taxpayer has a chance of getting payment suspended until after the objection and appeal is finalised and SARS must (except as noted above) give the taxpayer notice when applying for a civil judgment.
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