Holding SARS to its own rules: new measures receive a cautious welcome
Taxpayers get longer to lodge objections, but are still at the mercy of the taxman, practitioners say, with sometimes catastrophic consequences
A new SARS Service Charter and draft rules on handling tax objections and appeals have been welcomed, but practitioners say they do not go far enough to create a fairer situation for taxpayers.
The charter and the rules are part of a push to make SARS more accountable, and ultimately to restore trust in the tax authority.
Specific rules in the Tax Administration Act set out the correct process for handling disputes between the South African Revenue Service (SARS) and taxpayers. But SARS does not always follow the procedures or stick to the deadlines.
When creatures of statute do not adhere to their own rules, the public is prejudiced.
This has in the past placed taxpayers in some precarious circumstances.
The release of the SARS Service Charter at the start of July has been welcomed, and provides a framework for taxpayers on timelines and procedures.
Finance Minister Nhlanhla Nene also published draft rules relating to the procedures for lodging an objection and appeal against an assessment or decision, the procedures for alternative dispute resolution, and the conduct and hearing of appeals before a tax board or tax court.
One positive for taxpayers is the increase in the time allowed to object to a decision or an assessment — from 30 days to 60 days.
However, the South African Institute of Tax Professionals (SAIT) is of the opinion that it should be at least 90 days. And it says SARS should also be able to grant a further 90-day extension based on "reasonable circumstances".
"In this regard it should be borne in mind that the bar for exceptional circumstances has been lifted and is consequently interpreted very narrowly and therefore seldom met by taxpayers," SAIT said in a presentation to SARS.
Elle-Sarah Rossato, vice-chairperson of SAIT’s tax administration work group, says SARS has three years from the date of assessment before an assessment prescribes. "We are of the view that the period for the taxpayer to lodge an objection should also be three years."
She says there should be sanctions to compel SARS to adhere to the time frames in which it communicates reasons for an assessment or a decision on an objection.
These could be similar to the process taxpayers have to follow when requesting condonation for missing the deadline within which to lodge an objection.
"This would be in an effort to deter SARS from disregarding timelines. It will be a more cost-effective remedy than resorting to litigation by way of a judicial review or obtaining an interdict against SARS."
In terms of the rules, SARS must inform taxpayers within 60 days of a decision to allow or disallow an objection, and may extend the time frame for another 45 days.
"SARS rarely sticks to the 60-day time frame on a decision on objection, but has now renewed its commitment to time frames in the newly launched Service Charter."
She referred to a court case in the Eastern Cape High Court where a businessman interdicted SARS to prevent it from appointing a third party to collect tax debt of more than R1.4m before the final determination of an objection to a raised assessment.
In this case SARS raised two assessments, which the businessman promptly paid. An additional assessment of R1.24m was raised and the businessman objected.
SARS responded to this objection by objecting to the objection on the basis that the taxpayer’s objection did not comply with the rules.
The court found, however, that SARS had not complied with its own legislation as it failed to provide the taxpayer with all the information prescribed in the act.
The court found there was "no doubt" that SARS had dealt with the taxpayer in an "arbitrary manner", contrary to the act and the Constitution.
It lambasted SARS for almost closing down the taxpayer’s business, "with catastrophic results" not only for the businessman and his family but also for all of his employees — in a situation in which unemployment is rampant and reaching crisis proportions.
SAIT also raised concern about the appointment of facilitators during alternative dispute resolution proceedings in its comment to SARS on the draft rules.
SAIT says if the facilitator is well equipped to facilitate the proceeding, it should assist in conducting effective proceedings and possible resolutions.
"We query whether the rules are sufficiently specific in this regard and we are also mindful of the continual changing of hats between facilitators and SARS representatives as they see fit."
Rossato, also head of tax controversy and dispute resolution at PwC, says they often see the same people interchange as either tax representative or facilitator, which raises questions about the independence and effectiveness of the process. It is meant to be a fair, independent, swift and cost-effective means to settle tax disputes.
SARS has in the past allowed the allocation of independent third parties to facilitate alternative dispute proceedings, but has recently indicated it is unable to fund this — despite indications that some taxpayers are willing to pay for the services of an independent facilitator.
Rossato suggests publishing the names of facilitators, both internal and potential external facilitators, in the interest of transparency and good public administration and governance.
At least the taxpayer will know what the suggested facilitator’s level of expertise and experience is, she says.