Sars new additional and estimated assessments
10 September 2012
Posted by: SAIT Technical
By Dirk Kotze (Mazaars/Moneywebtax)
Sars has always had the power to raise additional or estimated assessments if they believed that taxpayers had made errors on returns or neglected to render returns that were due. Now, however, the Receiver is also raising assessments if taxpayers fail to provide information the Receiver has asked for within specific deadlines.
The new Tax Administration Act No 28 of 2011 is expected to become effective by the end of the year, and it contains various provisions allowing Sars to raise additional assessments as well as collect the associated taxes. All Sars requires to file a civil judgement against a taxpayer for outstanding taxes is an assessment, a statement of account showing that the tax is outstanding and a notice for a demand of payment of the taxes.
In the case of Sepataka v. CSars, 72 SATC 279, the court ruled that while Sars has the power to raise additional and estimated assessments, the potential effects on taxpayers might be draconian. It indicated that Sars' powers in raising these types of assessments should therefore be exercised with care by properly experienced and suitably qualified personnel as it may otherwise be reduced to an arbitrary ‘guestimate' with grave consequences for the taxpayer.
In mid-2010,[VAC1] it has almost become compulsory to submit VAT returns via e-filing. While this process works very well for submissions and for keeping proper records of historic returns and payments, it also gives Sars a mechanism to scrutinise returns a lot more quickly and efficiently.
As a result, VAT vendors often receive notifications for the review of returns as soon as they have been lodged on e-filing. This entails submitting their VAT workings and some of their larger invoices supporting the workings.
Some taxpayers, however, either don't receive the notifications or when they do, they fail to give Sars the information timeously. They're then shocked to find that Sars has issued additional assessments, and disallowed all the input taxes claimed, resulting in large tax bill. Affected taxpayers then have to lodge objections to the assessment in order to have them rectified again.
Similar situations arise where companies are called to submit supporting documentation for their tax returns. If they fail to submit, Sars disallows all the claimed expenditure and raises additional assessments, often with large sums of taxes due.
This means that taxpayers must actively monitor their e-filing profile for any correspondence from Sars or additional assessments.
It also means that once an assessment is raised by Sars it is due and payable and even if a taxpayer objects the principle of "pay now, argue later" applies unless Sars is approached with a request to postpone the collection action pending an objection or appeal.
The question can be asked whether Sars' mere disallowance of input tax or expenditure for failure to provide supporting information within a set period does not result in an "arbitrary guestimate" that will negatively affect the taxpayer. It appears that Sars has not taken these comments from the court case to heart and it remains the responsibility of the taxpayer to properly administer its tax affairs.
Taxpayers with larger budgets may be in a position to request Sars to justify its actions in terms of the Promotion of Administrative Justice Act but such requests would not in themselves provide safety from Sars taking collection action.
The effects of calls from Sars to submit documentation and the issue of additional or estimated assessment by Sars can therefore be far reaching if taxpayers do not act in time to either prevent them from being raised or dispute the assessment once it has been issued. Part of these procedures would include approaching Sars with a request to postpone collection action.