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Is "gross inadequacy" the new norm for tax officials handling disputes headed to court? And is the "inexcusable" behaviour, roundly criticised by the tax court this week, confirmation that the SA Revenue Service (Sars) has been infected by SA’s general civil service contagion?

In this newest judgment by the tax court on "S Company" — the court maintains a coy disguise even when, as in this case, the identity of the taxpayer is not hard to find — several issues were before the court, but of most general interest is the behaviour of Sars in handling the taxpayer’s query.

The company said it was manifestly prejudiced by Sars’s failure
to comply with the deadlines

After a lengthy back and forth correspondence about Sars’s decisions on its 2005-2012 assessments, "S Company" filed notice of appeal in January this year. Sars had 45 days to deliver a statement explaining the grounds of its assessments and opposing the appeal. But that deadline passed with no word from the revenue service.

Instead, at the end of the 45 days, Sars’s Victor Masola invited the company’s tax consultant to a meeting, at which he introduced himself as the Sars official dealing with the appeal.

At the meeting Masola said he was a relatively new staffer who needed "some time to acclimatise myself with [Sars’s] processes and also the facts of the appeals allocated to me". He asked for an extension to deliver the necessary statement from Sars.

Reluctantly, the company tax adviser agreed to June 13 — a further 45 days. When Sars was still not ready the company agreed, even more reluctantly, to wait a further month, to July 14.

Once again, the deadline passed. This time the taxpayer notified Sars that it would head straight to the tax court for a final order, should there be no compliance within 15 days. Sars yet again failed to comply, and its application for condonation for the late filing of its answering affidavit was brought way out of time.

[Sars] has paid little, if any, regard to the proper administration of justice
Judge JI Cloete

The company said it was manifestly prejudiced by Sars’s repeated failure to comply with the deadlines, despite the "generous" time frames of the rules.

For 10 years the company had tried to regularise its tax affairs, and had been to court against Sars four times. As a result, it had been difficult to perform income tax calculations, and to file provisional or income tax returns — but despite this it had never defaulted on payments due to Sars.

‘Inexcusable conduct’

Judge JI Cloete said Sars’s explanation for its delay of five months beyond the time limit was "grossly inadequate". But the revenue service had an even more fundamental problem, namely that it had not applied to court for condonation of its "grossly out of time" filing of its crucial statement in response to the appeal.

While Masola had given some reasons for delays attributable to him, Sars itself had been silent — conduct that "falls into the category of ‘inexcusable’", Cloete said.

"It has paid little, if any, regard to the proper administration of justice and the effect of its delay, both on the taxpayer in this matter and the fiscus."

As to the prospects of success in the case by Sars, its statement explaining the basis of its decision completely ignored key court decisions dealing with similar issues, motivating its case "as if they did not exist", and the court concluded that its application for condonation must fail.

In the result, the court altered the assessments issued by Sars, involving some R44m, replaced them with the version of the tax assessments put up by the company in its notice of appeal — and ordered Sars to pay the company’s legal costs.

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