NEWS ANALYSIS: Taxpayers pay the price for poor communication from SARS
‘If SARS can simply escape this obligation to give taxpayers an opportunity to be heard before having to pay, it makes a mockery of the supposed protections in the law’
Poor communication from the South African Revenue Service (SARS) when issuing assessments following an audit, or a review or verification, is causing confusion and frustration among taxpayers.
The Tax Administration Act requires SARS to provide taxpayers with a letter of audit findings after an audit to allow them time to respond before an assessment is issued. However, the letters are not co-ordinated or timed properly, leaving taxpayers uncertain as to how to respond once the assessment has been raised.
In practice, taxpayers also receive assessments without proper explanations for why deductions are denied or additional information rejected.
Patricia Williams, chairperson of the tax administration committee of the South African Institute of Tax Professionals (Sait), says it should be compulsory for SARS to issue a letter of findings where any of its processes — whether an audit, verification or investigation — results in the potential raising of an assessment.
In a submission to SARS and National Treasury, she says that the approach adopted by SARS — that it is obliged to issue the letter only when there has been an audit — undermines the provision in the act. "SARS would then be able to avoid its obligation to keep a taxpayer informed, which was inserted into the act to comply with administrative justice provisions, merely by changing the label of the relevant interaction with the taxpayer."
Williams says SARS also only indicates by way of a note number on the assessment what the reason for the assessment is. This note number has a generic statement, such as "burden of proof not discharged" or "invalid tax invoice".
"The taxpayer would then not understand which invoice SARS disputes, and which requirements of a valid tax invoice SARS disputes," says Williams.
The purpose of a letter of audit findings is to give taxpayers advance warning of a potential tax assessment, and an opportunity to respond if they disagree with the SARS findings. This "opportunity to be heard" is particularly important in the context of tax because, once SARS has issued an assessment, the taxpayer is obliged to pay immediately, even if the taxpayer believes SARS is incorrect, because of the "pay now, argue later" rule.
"If SARS can simply escape this obligation to give taxpayers a warning and an opportunity to be heard before having to pay, by changing what they call their investigation, it makes a mockery of the supposed protections in the Tax Administration Act," says Williams. SARS could look at a person’s taxes and simply call it a "verification" or a "review" or an "investigation", she adds.
Even if it could be argued that the act allows this, the approach contravenes administrative justice law, she says.
The almost "blanket denial" of tax deductions was one of the issues raised at a session during the recent Tax Indaba in Sandton. Beatrie Gouws, associate director at KPMG, says when third-party validation documentation is available to support claims, all seems fine, but once taxpayers go beyond that scope, they are in open waters.
She says it is problematic if there is not a "common understanding" of what constitutes an acceptable response from a taxpayer, what format is required, and when the response is expected. "There has to be a more common understanding of what is acceptable proof — and an acceptable procedure for how things should be done."
Fabian Murray, head of compliance and case selection at SARS, responds that medical tax credits, retirement fund contributions, car allowances and business expenses are high-risk areas, explaining that people fabricate logbooks or inflate the number of kilometres travelled for work. "Based on the parameters we have, we will be able to pick up on the anomalies." He says that last year alone, R7bn was not paid out because of high risk.
When there is a discrepancy between third-party data and what taxpayers provide, the onus is on the taxpayer to prove their information is correct, but there is no clarity or certainty about what is required from taxpayers to substantiate their claims.
Murray acknowledges that the "quality of the letters of audit findings" needs attention. "I accept that this is an area we have to work on, and see how we can improve our letters to accommodate it."
Williams says the provision of assessments without proper communication about the reasons behind it could be considered a "systemic issue". The Sait committee has raised the matter with both Treasury and SARS. If the concerns are not addressed and no proper explanation is given for not doing so, this may well be an appropriate area for a Tax Ombud investigation, according to Williams.