While the Tax Administration Act, 28 of 2011 ("the TAA") determined and consolidated the powers and duties of South African Revenue Service ("SARS") officials engaged in the administration of a tax Act, it also, to a certain extent codified the rights and obligations of taxpayers to whom the TAA applies. Due to the fact that the TAA has now been in effect for a couple of years since its commencement date of 1 October 2012, there is a greater understanding of how the legislation is being practically implemented. Recent experience indicates that there may be a growing disconnect between the internal policies being implemented by SARS officials and the actual powers provided for in the enabling legislation. This article briefly highlights two examples recently encountered in practice.
Section 164 – requests for suspension of payment of a tax debt
Section 164 of the TAA governs requests for the suspension of payment of a tax debt pending the outcome of an objection and appeal. Section 164(2) of the TAA, in particular states the following:
"A taxpayer may request a senior SARS official to suspend the payment of tax or a portion thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to pay tax under Chapter 9." [our emphasis]
While it is clear that section 164 does not actually require that the notice of objection is lodged, it has recently come to our attention that the relevant SARS committees will not consider the section 164 request for suspension of payment of the tax debt unless a copy of the taxpayer's objection lodged with SARS is provided. It is very important that taxpayers do not without good reason refrain from settling debts due and payable to SARS, however there is nevertheless an important purpose for the inclusion of the words "intends disputing" in the legislation.
It is submitted that by insisting on being provided with a copy of the objection, such action disregards the enabling legislation, is beyond the scope of the powers of SARS and is in effect prejudicial to a taxpayer. For example, a taxpayer may desperately require a valid Tax Clearance Certificate but is unable to obtain it as there is an outstanding tax debt owing to SARS which has not been considered under section 164 of the TAA as SARS insists on a copy of the submitted objection. The difficulty which often arises, however, is that the objection cannot be submitted due to a number of factors beyond the control of the taxpayer, including delays by SARS in providing adequate reasons.
The prejudice to a taxpayer in my view far outweighs the prejudice to SARS, particularly as SARS has the ability to immediately revoke the section 164 request for suspension to the extent that an objection is not ultimately lodged and in that instance, SARS will receive interest retrospectively on the amount of tax allegedly due. The insistence by SARS of a copy of the submitted objection does not therefore correctly reflect what is required in the TAA.
Prescription – Section 99(2) of the TAA
Ordinarily, SARS cannot make an assessment three years after the date of assessment of an original assessment by SARS and in the case of self-assessment (ie: VAT and PAYE), the period of prescription is extended to five years. This period of limitation creates much needed certainty and stability and similar periods of prescription in respect of fiscal matters are recognised the world over.
Having said that, section 99(2) allows SARS to re-open an assessment beyond the three or five year limitation periods to the extent that the full amount of tax chargeable was not assessed, was as a result of fraud, misrepresentation and/ or non-disclosure of material facts on the part of the taxpayer. Recent experience indicates that SARS is not as concerned as it should be whether it can be shown that there has been fraud, misrepresentation or non-disclosure of material facts but is rather more concerned whether it has a strong case insofar as the underlying merits are concerned. In other words, there is a view within SARS that the primary consideration in raising an assessment beyond the three year period is the strength of the underlying merits of the case and the issue of prescription is merely secondary and in essence is just a box that needs to be ticked. This is a worrying trend, as fraud, misrepresentation and non-disclosure of material facts are very serious allegations to make against a taxpayer which must be very carefully considered before being alleged.
It is always difficult to predict certain issues which may arise when the legislation is being drafted and often practical issues only arise subsequent to the promulgation of tax Acts. Having said that, it is understandable that the TAA in its infancy is still creating much uncertainty of treatment and interpretation by SARS, taxpayers and tax advisers alike. It is hoped that the issues raised above are merely isolated incidents and not evidence of a worrying trend that SARS is implementing policies that disregard the enabling legislation. Nevertheless, it is important that taxpayers fully understand their rights and obligations as contained in the TAA and where there is uncertainty, they should raise such issues through the formal SARS complaints mechanisms as well as consult professional advisers.