Get ready for 'jeopardy' assessments

South Africans need to prepare for rather invasive "jeopardy assessments" in their immediate taxpaying future.

Evan Pickworth

Articles

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This worrying new form of assessment is coming when the Tax Administration Bill evolves into law as the Tax Administration Act in the next month or so.

But this type of assessment can run into hot water very quickly if very stringent rules are not placed around when it can be applied and when not. Otherwise it is highly prejudicial to a taxpayer, if not unconstitutional as well.

However, I do understand that in certain cases charging someone ahead of his official assessment date can be very useful - read, for example when embezzlement and corruption has taken place and there is strong evidence the taxpayer will hide the assets.

With SA's corruption rate on the rise and a draconian secrecy bill in the offing, this assessment process could actually serve to weed out corruption from within - the Receiver nailing people involved in graft by undertaking jeopardy assessments on well- placed companies that benefited illegally from state tender money.

The only rub is that far too much discretion and power is being dished out to "senior SARS officials". Imagine the sense of hubris for these agents who can literally wade in and demand money from companies ahead of official payment dates. It could be a disaster if they get it wrong, and we know the SARS can get it wrong, and can also take its sweet time in some cases.

According to the Explanatory Memorandum, a jeopardy assessment may be issued in advance of the date on which the tax return would normally be due, in order to secure the early collection of tax that would otherwise be in jeopardy or where there is some danger of tax being lost by delay.

According to attorney at Cliffe Decker Hofmeyr, Johan van der Walt, it will be made where a senior SARS official is satisfied that such an assessment is necessary to secure the collection of tax that would otherwise be at risk, for example when a taxpayer attempts to place assets beyond the reach of SARS' collection powers once an investigation starts.

"The raising of a jeopardy assessment at a stage before any tax return is due is clearly a drastic measure," he rightly observes.

A recent UK case dealt with the issue and noted such an assessment can happen where there is an accrued right and a threatened breach.

Section 94 (2) does provide for a review application to the High Court on grounds that (1) the amount is excessive; and (2) the circumstances justifying such assessment are non-existent. "The reality is that any review application is a reactive (and costly) remedy," says Van der Walt.

And he is right to feel that the publication of detailed guidelines governing this important aspect of the act might be a better safe-guard, thereby pro-actively ensuring that a jeopardy assessment would only be raised in appropriate circumstances in the first place.

There is no question far better guidelines and training will be needed for these "senior SARS officials". It's not that hard. The UK case above reveals a number of things that need to be considered before such an assessment can hold mustard. It will just be stupid for SARS to try and get away with jeopardy without ticking the boxes.

Aspects like the merits of the tax case to be contested later on should be considered very carefully. Pointers regarding the taxpayer's honesty or dishonesty in past dealings with SARS should also feature, as should the taxpayer's historic general compliance record.

And here's an interesting one - the quantum of the assessment and how this stacks up against the taxpayer's resources. And please let them also work out whether the taxpayer's actions might possibly have involved criminality (eg fraud) before jumping on this particular bandwagon. Non-disclosure or concealment of assets via bank accounts should be provable as should the ease with which the taxpayer could dispose of assets and externalise the proceeds (eg multiple passports, access to off-shore bank accounts, relatives overseas).

Some clarity on Budget day on the assessment rules would not be out of place, including exactly when self-assessment can take place.

*This article is to inform and educate, not to advise.