The obligation of South African Revenue Service (SARS) to collect tax and taxpayers’ rights are often at odds with each other.
In an attempt to address this issue, the 2018 Budget proposed aligning the taxpayers’ constitutional rights with SARS’ constitutional obligations by including a provision in the Tax Administration (TAA) stipulating that SARS must inform the taxpayer at commencement of the audit when the information submitted in a tax return will be audited.
The provision is intended to cover desk audits which involve inspection or enquiries, without necessarily meeting with the taxpayer or third parties in person, explained Yashika Govind, a senior associate at Webber Wentzel.
She added that it has been confirmed that the decision to audit a taxpayer is considered “administrative action” in terms of the Promotion of Administrative Justice Act (PAJA).
“As a result, it is imperative that the Commissioner’s decision as well as the audit carried out by SARS be procedurally fair,” she said.
Consequently, any administrative action (i.e. a decision to audit or the issue of an additional assessment) must, for the purposes of procedural fairness, comply with the following five requirements listed in section 3(2) of PAJA:
- Adequate notice of the nature and purpose of the proposed administrative action must be given to the taxpayer;
- A reasonable opportunity to make representations must be given to the taxpayer;
- SARS must give the taxpayer a clear statement of the administrative action;
- Where applicable, the taxpayer must be given adequate notice of any right of review or internal appeal; and
- Adequate notice of the right to request reasons, in terms of section 5 of PAJA, must be given to the taxpayer.
“The outcome of the audit, and the corresponding notification to the taxpayer, is therefore a necessary precursor to the issuing of an additional assessment,” Govind said.
She added that the TAA also prescribes the procedure that SARS has to follow prior to, during and after a field audit or criminal investigation.
“Section 48(1) of the TAA (which sets out the procedure to be followed by SARS during a field audit or criminal investigation) provides that SARS must notify a taxpayer at least 10 business days prior to commencement of the audit of the relevant material that the SARS auditor may require to perform his/her field audit,” she said.
“Furthermore, section 42 of the TAA requires SARS to keep the taxpayer informed during the course of an audit. In addition, SARS must convey the outcome of the audit or criminal investigation to the taxpayer, within 21 days of concluding the audit or criminal investigation.”
Govind cited a recent judgement handed down by the Tax Court of Port Elizabeth, confirmed the importance of procedural fairness during an audit.
“In this case, SARS did not inform the taxpayer that his returns were being audited, nor did SARS convey the outcome of the audit to the taxpayer,” she said.
“The court found that the taxpayer was deprived of the opportunity to respond to the issues raised in the assessment. As a result, the court held that SARS’ failure to comply with sections 40 and 42 of the TAA was an affront to the Constitution and the principle of legality.”
Where taxpayers are forced to endure declining revenues and ever increasing costs, it important for them to remember their constitutional rights and SARS’ constitutional obligations when carrying out its function of administering the tax statutes, Govind said.