The third draft of the long awaited Tax Administration Bill ("TAB") was recently published for a final round of public comment. The TAB is an initiative to incorporate certain generic administrative provisions, which are currently duplicated in the different tax acts, into one piece of legislation. Since the TAB is now nearing the final stages of the legislative process, every taxpayer requires a basic knowledge of its implications.
- know your new identity
The TAB provides for a single registration system whereby taxpayers will register for all tax types by means of a single registration form. For example, an enterprise will no longer have to register separately for income tax and value-added tax. The South African Revenue Services ("SARS") may, however, allocate various reference numbers to one taxpayer to differentiate between various tax matters. Should the taxpayer correspond with SARS without mentioning the allocated reference number, SARS may disregard such correspondence.
In most instances, registration must take place within 21 business days from becoming liable or entitled to register under a tax act. "Business days" now also excludes days from 16 December to 15 January each year. Do not be surprised if SARS asks you to wink at them while you register, as "biometric information" may now be used to authenticate the identity of an individual. This includes any biological data, such as retina, voice, facial or fingerprint recognition. SARS is, however, obliged to put measures in place to secure the confidentiality and protection of such personal data.
In line with the single registration system, a single taxpayer accounting system will also be introduced. Taxpayers will have one tax account with a rolling balance of all outstanding taxes. Payment allocation rules may be applied in respect of a specific tax type and SARS may recover taxes by applying the first-in-first-out rule. This could give rise to some interesting issues where the amounts of certain taxes are in dispute and others are not.
- know who you are dealing with
SARS officials are now categorised into three tiers and decision making powers and functions are assigned accordingly. The three levels are (i) the Commissioner personally; (ii) "senior SARS officials"; and (iii) "ordinary SARS officials". The powers which may be exercised by senior SARS officials are generally more serious and impactful than the powers exercisable by ordinary officials. All SARS officials must carry SARS identification cards whenever exercising powers in terms of a tax act, which card must be shown upon request. This way, taxpayers can determine upfront if a person has the alleged authorisation to act.
Certain of SARS' powers are substantially extended by the TAB, for example their information gathering powers. If a person becomes "objectively identifiable" by SARS, relevant material in relation to that person may be procured from that person or from third parties. This includes, for example, where a taxable event demonstrates that a taxpayer exists, but SARS does not have such person's name or other details.
SARS may without prior notice arrive at and inspect premises to determine the identity of the person occupying the premises, whether that person is conducting a trade or an enterprise, or whether the person is registered for tax and keeps the required records.
A detailed search of a business premises may be conducted by SARS without a search warrant if a senior SARS official has reasonable grounds to believe that there may be an imminent removal or destruction of relevant material likely to be found on the premises and that the delay in obtaining a warrant from a court would defeat the object of the search and seizure. Such strong powers raise a number of constitutional issues.
Taxpayers may also be invited to informal examinations at a SARS office, for purposes of being interviewed regarding their own or another person's tax affairs. Should such invitations be received, taxpayers should obtain legal advice to ensure that they are well informed of their rights at the meeting.
In line with international practice, SARS may now also issue "jeopardy assessments" which basically entail that taxpayers may be assessed for taxes which will only become due in future. Only a senior SARS official may issue such assessments and they may only do so if the collection of a tax is in jeopardy (e.g. where assets may be dissipated).
- know your rights
According to SARS, the TAB seeks to achieve a balance between the powers of SARS, on the one hand, and the rights of taxpayers, on the other. Taxpayers should therefore be aware of their rights so that they can be enforced when necessary.
In terms of the so-called "pay now argue later" principle, taxpayers are currently obliged to pay outstanding taxes immediately, despite a pending objection or appeal. This obligation may now be suspended at the discretion of a senior SARS official. The TAB provides various criteria which the officer must consider, such as the compliance history of the taxpayer, the amount of tax involved and the ability of the taxpayer to provide security for the payment. Should it be decided that the payment may not be suspended, SARS may not recover the tax for another 10 business days. In this way the taxpayer is given a reasonable opportunity to consider its further rights.
Once a tax is recoverable, the TAB reduces the current 30 year prescription period for collection of the debt to 15 years.
Subject to certain exceptions, a taxpayer must now be kept well informed during a SARS audit (which must be distinguished from searches and seizures and unannounced investigations discussed above). The taxpayer is entitled to frequent progress reports of the audit, as well as a written notification of the final outcome. The taxpayer must also be given an opportunity to respond to the audit findings. A field audit may only be conducted if notification thereof was given at least 10 business days in advance.
The TAB also separates audits from criminal investigations to ensure that accused taxpayers can enforce all their constitutional rights. For the same reason, the TAB removes the strict "reverse onus" that taxpayers bear if they are accused of tax evasion. A "lesser onus" will now apply, in terms of which the accused taxpayer only has to prove a "reasonable possibility" of ignorance of the falsity of the fraudulent statement and that such ignorance was not due to negligence.
- know on whose door you can knock
The TAB creates the office of the Tax Ombud, which provides for a significant change to the dispute resolution system when it comes to service, procedural or administrative difficulties.
Independent Tax Ombuds play an important role in countries such as Canada and the UK and could, if managed properly, provide an effective recourse locally for taxpayers complaining about poor service and administration by SARS. The mandate of the Tax Ombud will be to review and mediate complaints, to make recommendations to SARS and to report directly to the Minister of Finance. The mandate does not cover the review of legislation, tax policy or practice generally prevailing.
In the introduction of the TAB to Parliament, the Minister of Finance explained that the Tax Ombud is not intended to usurp the role of SARS's existing internal mechanisms, the Public Protector or the Courts. The Tax Ombud is an additional low cost avenue to resolve administrative difficulties, located between SARS's internal mechanisms and the existing external mechanisms.
Information communicated to the office of the Tax Ombud will be subject to strict confidentiality protection and the Tax Ombud may generally not disclose taxpayer information, not even to SARS.
- know that the truth will set you free
While the extension of SARS' powers are aimed to target tax evaders more effectively, the TAB also seeks to ensure a better service, efficiency and simplicity to honest and compliant taxpayers. In this context the TAB provides for a permanent voluntary disclosure programme ("VDP") applicable across all tax types (excluding customs and excise), unless the taxpayer involved is subject to a pending or existing audit or investigation by SARS.
A full disclosure of a tax understatement can lead to a 100% relief of an administrative non-compliance penalty and a partial relief of an understatement penalty (previously known as additional tax). Also, SARS will not pursue criminal prosecution.
It should be noted that the permanent VDP under the TAB is not as accommodating as the current temporary VDP (available to taxpayers until 31 October 2011). For example, under the proposed permanent VDP, no interest relief will be offered.
Taxpayers should therefore seriously consider disclosing past non-compliance and the sooner they do the better. If no voluntary disclosure has been made and SARS discovers past non-compliance or tax understatements (which are very possible with SARS' supplemented powers), perpetrators will face severe penalties which may include criminal prosecution.
Even though the TAB may strive to achieve a balance between the powers of SARS and the rights of taxpayers, the supplemented powers of SARS should not be underestimated. Taxpayers should now, more than ever, ensure that their tax affairs are in order and must develop a full understanding of the extent of their rights so that these rights can be exercised when necessary. To achieve this outcome, it is advisable that taxpayers obtain assistance from professional advisors when dealing with SARS, especially if they are notified of a field audit or invited to an informal examination at a SARS office. Failure to do so will put the taxpayer at a disadvantage and may create an opportunity for SARS to overstep its boundaries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.