South Africa: The Supreme Court Of Appeal Admonishes The South African Revenue Service

Last Updated: 28 August 2014
Article by Beric Croome

Under the provisions of the Tax Administration Act, the Commissioner: South African Revenue Service ('SARS') is entitled to request that a taxpayer submits relevant material that SARS requires in terms of section 46 of the Tax Administration Act No. 28 of 2011 ('TAA').

Section 1 of the TAA in turn defines 'relevant material' as meaning:

"any information, document or thing that is foreseeably relevant for the administration of a Tax Act as referred to in section 3."

Section 3 in turn contains an extensive definition of what constitutes the administration of a Tax Act and in essence encompasses information required for purposes of assessing taxpayers for tax purposes.

Under the general provisions of the TAA a taxpayer bears the onus that an amount is not subject to tax or that a deduction claimed is deductible for tax purposes. Section 102 of the TAA, which replaced the erstwhile onus provision contained in section 82 of the Income Tax Act, provides that a taxpayer bears the burden of proving:

  • 'that an amount, transaction, event or item is exempt or otherwise not taxable;
  • that an amount or item is deductible or may be set-off;
  • the rate of tax applicable to a transaction, event, item or class of taxpayer
  • that an amount qualifies as a reduction of tax payable;
  • that a valuation is correct; or
  • whether a "decision" that is subject to objection under appeal in the Tax Act, is incorrect.'

However, the burden of proving whether an estimate envisaged in section 95 of the TAA deals with estimation of assessments the burden shifts to SARS which is required to show that the estimate is reasonable. Furthermore, where SARS imposes an understatement penalty SARS must prove the facts on which it based the understatement penalty levied under chapter 16 of the TAA.

It must be remembered that where a person is charged with a criminal offence, the state has the obligation to prove that the person committed that offence beyond any reasonable doubt, which is a very high threshold. Insofar as discharging of the onus under tax legislation is concerned, the taxpayer must show on a balance of probabilities that the facts or assertions made are correct.

When SARS conducts an audit and requires information to satisfy SARS that deductions have been properly claimed, the question often arises as to the extent of documentary evidence that is required to be submitted by a taxpayer to discharge the onus placed upon the taxpayer under the TAA.

In the Supreme Court of Appeal case of The Commissioner for the South African Revenue Service v Pretoria East Motors (Pty) Ltd, case number 291/12 [2014] ZASCA 91 in which judgment was delivered by Ponnan JA on 12 June 2014 clear guidelines were set out as to what constitutes sufficient proof which should be acceptable to SARS in a taxpayer discharging the onus borne by a taxpayer.

In the Pretoria East Motors case the taxpayer carried on business as a car dealership in Pretoria selling new and used vehicles. During June and July 2003 SARS officials conducted a detailed audit of the taxpayer's affairs covering the period 2000 to 2004. In concluding the audit SARS issued additional income tax and value-added tax assessments. The taxpayer lodged objections against the various assessments and that having been disallowed by SARS it then appealed to the Tax Court in Pretoria. Both the taxpayer and SARS were dissatisfied with the decision of the Tax Court and the case proceeded to the Supreme Court of Appeal.

The Court pointed out that much of the evidence presented at the Tax Court took the form of documentary exhibits, including documents obtained or prepared by SARS during the course of the audit.

The Court pointed out that the taxpayer's ipse dixit will not lightly be regarded as decisive. It is necessary that the taxpayer's ipse dixit is considered together with all of the other evidence of the case. The Court made the point that the interests of justice require that the taxpayer's evidence and questions of its credibility be considered with great care. It is required that the taxpayer's evidence under oath and that of its witnesses must be properly considered by the court and the credibility of the taxpayer's witnesses must be assessed no different to any other case that comes before a court.

SARS issued additional assessments on the basis of information obtained from the taxpayer's records and the court indicated that the SARS official, namely Ms Victor, was to examine the taxpayer's accounts and where she identified a discrepancy that she did not understand be raised in assessment to additional tax either for income tax or VAT or in some cases both. The court pointed out that Ms Victor did not seek to familiarise herself with the workings of the taxpayer's accounting system even though the information was available to her. Certain of the transactions concluded by the taxpayer were purely internal to the taxpayer's operations and was being reflected as sales on that internal system did not comprise sales in the true sense for fiscal purposes. The court pointed out that Ms Victor ignored the internal character of the transactions of the taxpayer and she levied VAT thereon. At paragraph 11 the court stated as follows:

"As best as can be discerned, Ms Victor's approach was that if she did not understand something she was free to raise an additional assessment and leave it to the taxpayer to prove in due course at the hearing before the Tax Court that she was wrong. Her approach was fallacious. The raising of an additional assessment must be based on proper grounds for believing that, in the case of VAT, there has been an under declaration of supplies and hence of output tax, or an unjustified deduction of input tax. In the case of income tax it must be based on proper grounds for believing that there is undeclared income or a claim for a deduction or allowance that is unjustified. It is only in this way that SARS can engage the taxpayer in an administratively fair manner, as it is obliged to do. It is also the only basis on which it can, as it must, provide grounds for raising the assessment to which the taxpayer must then respond by demonstrating that the assessment is wrong. This erroneous approach led to an inability on Ms Victor's part to explain the basis for some of the additional assessments and an inability in some instances to produce the source of some of the figures she had used in making the assessments. In addition, as a matter of routine, all the additional assessments raised by her were subject to penalties a the maximum rate of 200 per cent, absent any explanation as to why the taxpayer's conduct was said to be dishonest or directed at the evasion of tax."

It is clear that the Supreme Court of Appeal has held that in auditing a taxpayer the Commissioner is required to properly consider the documentation provided and to understand that information. It is not sufficient for SARS to merely request information and then disregard it and to issue an assessment as it sees fit.

The court made the point that where the SARS auditor issues an assessment based on the taxpayer's accounts and records but has misconstrued those records then it will be sufficient for the taxpayer to explain the nature of SARS' misconception, point out the flaws in the analysis and to explain how those records and accounts should be properly understood.

Whilst it is clear from the judgment that the taxpayer did not succeed in all of its challenges to the VAT and tax assessments issued by the Commissioner, the taxpayer did succeed in satisfying the court that SARS had gone too far in reaching the conclusions it did by disregarding information provided to it.

It is clear under the right to administrative justice in section 33 of the Constitution that taxpayers are entitled to fair administrative action and this includes the conduct of SARS officials in concluding an audit into the affairs of the taxpayer. The law requires that SARS officials properly evaluate the documentary evidence presented and where taxpayers reach the conclusion that this is not the case they should challenge SARS' decision or alternatively seek to raise the problem directly with the office of the Tax Ombud which office has been created to deal with abuses of power by SARS and where SARS does not comply with proper procedures in administering the tax laws of South Africa.

SARS, in the case under consideration alleged that insufficient proof had been made available by the taxpayer. In fact the taxpayer had offered SARS sight of all of the taxpayer's ledger accounts and this invitation was declined. It is clear that in the case the SARS auditors had been given access to the documents substantiating the taxpayer's accounts but chose not to examine them.

Thus, taxpayers who are subject to audit by SARS need to be aware of the rights that they have flowing from the Constitution and also the level and standard by which SARS is required to operate which are enshrined in the Constitution under fiscal laws of the country.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions