Know your rights
Dr Beric Croome, March 2013
Dr Beric J Croome TEP is a Tax Executive at Edward Nathan Sonnenbergs Inc, South Africa.
Only after the political changes in South Africa whereby the country became a constitutional democracy did taxpayers obtain rights enshrined in the Constitution. These rights affected the powers contained in the fiscal laws and also the manner in which the Commissioner of the South African Revenue Service (SARS), dealt with taxpayers in South Africa.
The Constitution of the Republic of South Africa, Act 108 of 1996, confers on taxpayers the right to administrative justice, which provides that everyone has the right to administrative action that is lawful, reasonable and procedurally fair. Thus, taxpayers have the right to request that they be given written reasons by the Commissioner for administrative action taken that affects them. Thus, when the Commissioner issues an additional assessment to a taxpayer after having conducted an audit, it must explain to the taxpayer the basis on which that assessment has been issued and the reasons for it.
Tax Administration Act
More recently, South Africa saw the enactment of the Tax Administration Act, No 28 of 2011 (TAA), which took effect on 1 October 2012, and which seeks to regulate the administration of all fiscal statutes in the country except for customs and excise. Previously, the administrative provisions regulating tax were contained in the various statutes administered by SARS. The new legislation seeks to harmonise the administrative provision across the various fiscal statutes in the country. In preparing the TAA, the authorities were mindful of the rights that taxpayers have in their dealings with the revenue authorities, and consulted extensively with specialists in tax and constitutional law to ensure that the provisions of the TAA comply with the Bill of Rights contained in the Constitution.
Before the TAA entered force, the Commissioner was not legally required to keep a taxpayer informed as to the progress made in an audit conducted on the taxpayer’s affairs. This has changed with the TAA, which requires that the Commissioner keep the taxpayer informed as to the status of an audit and what further information may be required to bring the audit to a conclusion. The difficulty that taxpayers faced in the past was that information would be supplied to the Commissioner and if no adjustment was to be made to the taxpayer’s assessment no notification would be issued to the taxpayer. In other cases, taxpayers would have supplied substantial information to the Commissioner and would hear nothing from the authorities for many months, then suddenly be requested to supply additional information in a matter of days. Hopefully, the new requirements imposed on the Commissioner will mean that taxpayers will be kept informed of the status of audits conducted on their affairs by SARS.
In addition, the TAA requires that where SARS conducts an audit and decides to begin a criminal investigation, any relevant material gathered during an audit, after the referral of the matter for criminal proceedings, must be kept separate from the criminal investigation and may not be used in criminal proceedings instituted in respect of the alleged offence. The TAA therefore seeks to protect the rights of an accused as enshrined in the Constitution, which was previously not the case.
The Commissioner has substantial powers to ensure that tax due is paid. One such power is referred to as the judgment procedure, whereby the Commissioner may file a statement of tax owing by a taxpayer with the registrar of a competent court. This has the effect of the civil judgment against the taxpayer. Before 1 October 2012 it was not necessary for the Commissioner to advise the taxpayer that it intended to file a statement at the court, and once that statement was filed the Commissioner could execute on the strength of that judgment and proceed to attach assets owned by the taxpayer to settle the debt due to SARS. As a result of the TAA, the Commissioner is required to inform a taxpayer that a statement will be filed at the court, unless such notification to the taxpayer will prejudice the collection of the tax. Unfortunately, it does appear that statements are filed at the court even though taxpayers are unaware of any tax owing to SARS, as statements of account retrieved by the taxpayer from the electronic filing system do not reflect any debt owing to SARS.
The tax statutes regulate the resolution of disputes with SARS whereby taxpayers may challenge a tax assessment by lodging an objection against it. The objection must be properly considered and decided on by the Commissioner. If the taxpayer remains dissatisfied with the decision made by the Commissioner, the taxpayer can note an appeal against the disallowance of the objection to the Tax Court. The Tax Court is presided over by a judge of the High Court of South Africa with two assessors, and is a closed court in that members of the public may not attend the hearing of its proceedings. Previously, the judgments of the Tax Court were selectively published. This was unfair, as SARS held copies of all judgments handed down by the Tax Court, whereas taxpayers were not privy to all judgments. The TAA requires that all judgments of the Tax Court must be published in future, minus the taxpayers’ names. This should assist taxpayers in gaining a better understanding of how the Tax Court has decided various tax appeals.
Where the Commissioner or the taxpayer is dissatisfied with the decision of the Tax Court, either party may appeal against that decision to a full bench of the High Court or to the Supreme Court of Appeal.
In 1994 the Minister of Finance announced the appointment of a Commission of Inquiry into Certain Aspects of the Tax Structure of South Africa (the Katz Commission). The Katz Commission was required to evaluate the tax laws of the country in light of the Bill of Rights contained in the Constitution and to recommend which provisions needed to be refined as a result of the enactment of the Bill of Rights. Before 1994 the Commissioner could search a taxpayer’s premises and seize documents without judicial oversight. As a result of the Katz Commission’s report the tax laws were amended, and now require the Commissioner to obtain a warrant from a judge of the High Court to search premises and seize documents from taxpayers. This was to ensure that the taxpayer’s right to privacy enshrined in the Constitution was upheld.
The introduction of the TAA has been controversial because it confers on a senior SARS official the power, without judicial intervention, to conduct a search and seizure operation where there is the belief that documents are about to be destroyed that may be of value to the Commissioner. SARS pointed out that 17 other statutes in the country contain similar powers and none of those have been struck down as invalid under the Constitution. Taxpayers have the concern that the power to search and seize documents without a warrant may be abused. It remains to be seen if this power will be reviewed by the courts.
In 1995 the Katz Commission recommended that a statement of taxpayer’s rights be introduced. Subsequently, in 1997 the Minister of Finance published the SARS Client Charter. That charter constituted a statement of intent by the Commissioner and did not alter the law or confer any greater rights on taxpayers. The SARS Client Charter also summarises the obligations that taxpayers face under the country’s tax laws. In 2002, the Commissioner published the SARS Client Service Charter, which sought to expand on the rights of taxpayers in their dealings with SARS and sets out the levels of service that taxpayers may expect in their dealings with SARS.
Where taxpayers are aggrieved by the way they have been dealt with by SARS they can initiate a complaint with the SARS Contact Centre or with their local SARS branch office. Failing resolution of the taxpayer’s complaint using either of these channels, the taxpayer can escalate their complaint to a separate office located in Pretoria, known as the SARS Service Monitoring Office.
The TAA has introduced the legal framework for the creation of a Tax Ombud. The Minister of Finance indicated that it intended to appoint a Tax Ombud before 31 December 2012, but this has not yet taken place. South Africa has based the creation of its Tax Ombud on the Taxpayer Adjudicator in the UK and the Tax Ombudsman in Canada. The purpose of the Tax Ombud is to assist taxpayers who experience administrative difficulties with SARS. The Tax Ombud is unable to intervene in legal disputes as a separate and well-defined process exists to resolve such matters. The Tax Ombud is required to consider all complaints brought to that office’s attention. Furthermore, the Tax Ombud must identify the ten most important administrative issues causing taxpayers difficulties so that those can be addressed by the authorities with a view to simplifying the obligations faced by taxpayers in complying with the country’s fiscal laws.
The introduction of the Bill of Rights has enhanced the protection of taxpayers in their dealings with the Commissioner and the manner in which the tax laws are administered in the country. It is hoped that the Tax Ombud will be effective and assist those taxpayers who are dissatisfied with the manner in which they have been dealt with by the Commissioner. The TAA seeks to ensure that the rights of taxpayers are protected, and, taking account of its provisions, it appears that, on balance, that objective has been achieved.