Good news for taxpayers in South Africa
The South African Revenue Service (SARS) has issued new guidance on correcting tax assessments, potentially easing its previously restrictive policies on the matter.
The interpretation note concerns reduced assessment applications for taxpayers who discover errors in previously submitted returns or assessments.
It addresses the meaning of a “readily apparent undisputed error” as written in the Tax Administration Act of 2011.
This part of the Act provides taxpayers with a way to correct genuine mistakes in their submissions to SARS, thereby avoiding unnecessary disputes with the service.
However, since the Act was first introduced, amendments have made it increasingly difficult for people to use this avenue.
In particular, the Act was amended in 2016 to change from a genuine mistake needing to be “apparent” to “readily apparent”.
According to Tax Consulting SA, the Act was amended due to concerns that taxpayers were using it to circumvent objection deadlines or reopen disputes.
“The amendment followed concerns that taxpayers were using reduced assessment applications to circumvent objection deadlines or reopen substantive tax disputes,” the group said.
It elaborated that, while this was the intention, in practice, South Africans have faced increased challenges when attempting to file reduced assessment applications.
“In practice, taxpayers and practitioners have encountered an increasingly restrictive approach to these applications in recent years, with SARS often requiring extensive substantiation or rejecting applications that involve anything beyond straightforward mistakes,” it said.
“The new Interpretation Note provides much-needed clarity on where the boundaries should lie.”
Tax Consulting SA said the interpretation note could be an aid to taxpayers in correcting legitimate mistakes or a way to reinforce barriers for taxpayers.
“The question is whether SARS has opened the door to correcting legitimate mistakes or simply reinforced the barriers taxpayers have increasingly encountered,” the group said.
A win for taxpayers
Part of the new guidance is that errors which qualify for reduced assessment applications include more than typographical errors.
Genuine errors can now include information being accidentally added or omitted in filings to SARS, along with spelling or arithmetic mistakes.
“An error may arise from something incorrectly included in a return, something omitted entirely, or even an error originating in the underlying accounting or tax records,” Tax Consulting SA said.
“For example, SARS considers a company that inadvertently omitted a legitimate international travel expense deduction from its income tax return.”
The interpretation note also noted that incorrect amounts, which were submitted and then corrected using corrected documentation, can qualify for a reduced assessment.
“The critical consideration is not simply how the mistake occurred, but whether its existence and financial impact can be established without substantial investigation,” Tax Consulting SA said.
Another important note which the group identified regards the interpretation of SARS’ ability to approve or reject reduced assessment applications.
It said that, drawing on a previous judgement, the interpretation note can be seen as favourable to taxpayers in SARS’ ability to reject applications.
“It confirms that where SARS is satisfied that all the statutory requirements have been met, and no other applicable tax provision prevents the correction, SARS is obliged to issue the reduced assessment,” it explained.
“This is an important distinction. SARS’s discretion is not an unrestricted licence to reject otherwise valid applications.”
While the new interpretations are good news for taxpayers, there is still one important part of reduced assessment applications – mistakes must be easily verifiable.
When a taxpayer can readily demonstrate that a mistake was made, the application will be approved; otherwise, complicated tax disputes could arise.
“The Interpretation Note distinguishes between mistakes that can be verified through simple administrative checks and those requiring extensive factual or legal investigation,” Tax Consulting SA said.
“Even where a taxpayer’s proposed correction is ultimately correct, that does not automatically establish entitlement to a reduced assessment.”
Positively, the interpretation note also states that SARS must provide a reason if it rejects an application.
Overall, Tax Consulting SA said the note was a welcome clarification but should not be confused with a relaxation of the law.
“Ultimately, Interpretation Note 147 represents a welcome clarification, rather than a relaxation of the law,” the group said.
“Its greatest benefit is that it provides taxpayers and practitioners with a clearer framework against which SARS’s decisions can be measured.”
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