There are provisions within the Tax Administration Act, 2011 (the "TAA") that allow taxpayers to request assessment corrections without having to rely on the often protracted dispute resolution procedures provided for in the TAA, read together with the Tax Court Rules. In particular, section 93 of the TAA deals with "Reduced Assessments" and provides (with our emphasis) as follows:
"(1) SARS may make a reduced assessment if—
(a) the taxpayer successfully disputed the assessment under Chapter 9;
(b) necessary to give effect to a settlement under Part F of Chapter 9;
(c) necessary to give effect to a judgment pursuant to an appeal under Part E of Chapter 9 and there is no right of further appeal;
(d) SARS is satisfied that there is a readily apparent undisputed error in the assessment by—
(i) SARS; or
(ii) the taxpayer in a return;
(e) a senior SARS official is satisfied that an assessment was based on—
(i) the failure to submit a return or submission of an incorrect return by a third party under section 26 or by an employer under a tax Act;
(ii) a processing error by SARS; or
(iii) a return fraudulently submitted by a person not authorised by the taxpayer; or
(f) the taxpayer in respect of whom an assessment has been issued under section 95 (1), requests SARS to issue a reduced assessment under section 95 (6).
(2) SARS may reduce an assessment despite the fact that no objection has been lodged or appeal noted."
As is clear from the wording of section 93, this provision allows a taxpayer to correct their tax position without having to follow the time-consuming and often complicated objection and appeal process. However, there appears to be a clock ticking in respect of when a taxpayer can invoke these provisions. In the remainder of this article we focus particularly on section 93(1)(d)(ii) where there is a readily apparent undisputed error made by a taxpayer in their return.
As referred to above, section 93 appears to be subject to the periods of limitations for issuance of assessments (commonly referred to as prescription) governed by section 99 of the TAA, as both sections 93 and 99 fall within Chapter 8 of the TAA (sections 91 – 100) and section 99 provides generally for the making of assessments (i.e. including reduced assessments) in terms of Chapter 8.
As a reminder, section 99 inter alia time bars the issuing of income tax assessments three years following the date of an original assessment and for VAT, five years following the self-assessment by a taxpayer. The most well-known exceptions to these periods arise where SARS can show that the fact that the full amount of tax chargeable was not assessed, was due to fraud, misrepresentation or non-disclosure (and in addition, in the case of VAT, the failure to submit a return). There are also other limited circumstances where the time bar will not apply, including where SARS becomes aware of an error referred to in section 93(1)(d) before the expiry of the prescription period.
What this means in the context of requesting a reduced assessment based on a readily apparent undisputed error is that unless SARS becomes aware of an error before an original assessment expires, a taxpayer will be time-barred from utilising the reduced assessment process.
While the certainty of a tax position is important, the prescription provisions themselves, specifically section 99(2) appear to be biased against taxpayers. Section 99(2) essentially provides that the prescription periods will not apply where the fact that the full amount of tax chargeable was not assessed, was due to inter alia misrepresentation, non-disclosure or fraud. In other words, SARS can re-open prescribed assessments in certain circumstances where potentially more tax is owed if this is the interpretation to be given to the underlined phrase above. If this is the correct interpretation, where a taxpayer has misrepresented a position and the correction thereof results in less tax to be paid it appears that prescription will apply to such assessments and therefore SARS cannot reassess after the years have prescribed.
A taxpayer accordingly appears to be at a serious disadvantage where an error has been made but not picked up timeously, which is often the case.
It is interesting to note that before January 2016, section 98(1)(d) of the TAA, in the context of withdrawal of assessments, dealt with circumstances where a taxpayer could request a withdrawal of an assessment where there was inter alia:
- an undisputed factual error by the taxpayer in a return that imposed an unintended tax debt in respect of an amount that the taxpayer should not have been taxed on;
- the recovery of the tax debt under the assessment would produce an anomalous or inequitable result; there was no other remedy available to the taxpayer; and
- it was in the interest of the good management of the tax system. This provision was not subject to any time bars as it involved the withdrawal of an assessment and not the making of one.
Even though section 93(1)(d) was intended to be the replacement for section 98(1)(d), it leaves the taxpayer at a significant disadvantage because it severely limits a taxpayer's ability to sort out the inevitable problems that arise and are not catered for not only because of the time bar but also because of the narrowed scope of the amended legislation. This should be revisited by the legislature.
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.
