Think twice before taking on SARS in court
The South African Revenue Service (SARS) is making record collections, and data shows that the taxman is mopping up in court.
SARS recorded total tax collections of R2.155 trillion for the 2023/24 financial year, a record figure and R10 billion more than expected.
A primary reason for the better-than-expected result was due to the tax service’s ramped-up compliance efforts – including taking more taxpayers to court.
“As part of its compliance efforts, SARS has a litigation strategy that seeks to provide certainty and clarity for taxpayers through the courts on tax and customs laws and when justifiable, to make non-compliance hard and costly,” said Bernard Mofokeng, Tax Controversy Leader at Deloitte Africa.
“This strategy has been implemented over several years and is continually producing better results each fiscal year.”
Over the fiscal year, SARS was successful in 94 of the 110 cases that were handed down – a litigation success rate of 84%.
Read another way – taxpayers only have a 16% success rate when challenging the taxman in court, and the costs to do so can be staggering.
Mofokeng said that the high success rate has been a trend for a few years and must be considered by those thinking of taking SARS to court.
Although South Africa is becoming a very litigious country, many in the public are not aware of the parties’ litigation strategies, the large amount of time spent on those cases, the opportunities lost, or the financial costs involved.
If a taxpayer does litigate, it usually means that all internal remedies, such as the dispute resolution (DR) process in the Tax Administration Act of 2011 (TAA), have been exhausted.
A taxpayer could spend thousands during the DR process.
Judgments from the Tax Court can be appealed in the High Court, then the Supreme Court of Appeal (SCA), and possibly the Constitutional Court—with costs skyrocketing into the millions.
“Years will be spent on the case without any certainty on how to apply the relevant tax laws, which would, in almost all cases, have resulted in lost business opportunities for most taxpayers,” said Mofokeng.
Not all bad
However, the 84% litigation success rate only applies to a very small number of cases lodged against SARS by taxpayers.
SARS has yet to provide its full analysis of dispute tax cases, but the 2023/24 fiscal year is expected to be in line with 2021/22 and 2022/21.
During the 2022/23 fiscal year, SARS received 161,115 objections (the first step in the tax dispute process).
Over 21,900 of these objections were disallowed, and only 10,285 were referred to litigation by taxpayers in Tax Board and Tax Court.
Roughly 7,644 of the cases were finalised due to SARS or the taxpayer conceding, withdrawing or settling the case.
Thus, the DR process plays an essential role in resolving tax disputes and taxpayers should use this process to ensure that they can avoid SARS in the courts, which, for now, generally favour SARS.
“Even with ultimate success in the courts by the taxpayers, they may have lost the war considering the time, money and opportunities lost and that SARS (and the National Treasury) may ultimately decide to amend the provisions in the tax legislation that was an issue in dispute in the courts.”
“Taxpayers must always remember that they are underdogs when they are litigating tax cases against SARS. There are 8 out of 10 chances that Goliath, not David, will be the victor in any tax dispute that is ultimately decided by a court of law.”
“In simple terms, counsel should probably advise taxpayers of at least a 20% success rate when they are litigating against SARS in a tax dispute in court.”
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