SARS & Fair Administrative Action: Quo Vadis?
31 January 2013
Posted by: Author: Professor RC Williams
SARS & Fair Administrative Action: Quo Vadis?
From inception, South Africa’s income tax legislation recognised a taxpayer’s right to dispute with the tax authorities the correctness of an income tax assessment. That is, of course, a right that derives from the rule of law itself, for tax is levied in terms of legislation and is not imposed at the whim of the revenue authorities.
The amount of tax that is payable, the due date for payment, the taxpayer’s right to exemption from tax on certain amounts, and the deductibility of qualifying expenditure are all issues that involve the interpretation and application of parliamentary legislation – which is the exclusive preserve of the courts.
Tax legislation is notoriously complex and difficult to interpret and, if no agreement can be reached between the taxpayer and the revenue authorities, the dispute must be resolved by the ordinary courts. To this extent, the body of law which may, for convenience, be called tax administration has been part of the South African tax system from the outset and taxpayers’ rights have always been part of that body of law.
The revolution in our legal system that was wrought by the interim and final Constitution had a profound impact on taxpayers’ rights in South Africa. For the first time, the validity of legislation – including tax legislation – and the conduct of the tax authorities in applying that legislation could be challenged as being contrary to the constitutional bill of rights.
From that time onward, tax administration has had to take account, not only of a taxpayer’s right to challenge the revenue authority’s assessments to tax on the merits, by way of objection and appeal against an assessment, but also of taxpayers’ rights to challenge the validity of legislative provisions and the conduct of officials of the revenue authorities as an organ of state.
No less significant has been the fiscal dimension of a taxpayer’s constitutional right to administrative action that is lawful, reasonable and procedurally fair as first articulated in skeletal form in section 33(1) and (2) of the Constitution and the right of any person whose rights have been adversely affected by administrative action to be given written reasons for such action.
As the Supreme Court of Appeal observed in Investigating Directorate: Serious Economic Offences v Hyundai Motor Distributors (Pty) Ltd: In re Hyundai Motor Distributors (Pty) Ltd v Smit NO and  ZACC 12; 2001 (1) SA 545 (CC) – "All statutes must be interpreted through the prism of the Bill of Rights”, and this is as true of fiscal legislation as of all other legislation.
The constitutional right to procedurally fair administrative action was given detailed expression in dedicated legislation, namely, the Promotion of Administrative Justice Act 3 of 2000, as was foreshadowed and indeed promised in the Constitution itself.
Taxpayer’s rights to administrative justice, as expressed in the Promotion of Administrative Justice Act, are proving a significant counterweight to SARS’s draconian powers, not merely to issue assessments to tax, but to require that the amount assessed be paid forthwith, even where liability is disputed by the taxpayer.
However, a decade after the enactment of the legislation, some aspects of taxpayers’ constitutional rights are still uncertain; other aspects have only recently been the subject of judicial decisions which may not withstand appeal to the Supreme Court of Appeal and the Constitutional Court.
Thus, for example, it seems from the decision in Corpclo 2290 CC t/a U-Care v Registrar of Banks  ZASCA 156, handed down on 2 November 2012, that a purely investigatory action by an organ of state (such as, for example, a decision by the South African Revenue Service to audit a taxpayer) is not administrative action and consequently cannot be the subject of judicial review.
It is still unclear how a proposed decision (as envisaged in the definition of decision in section 1, and as distinct from a decision) by an organ of state, such as SARS, can be the subject of judicial review, given that the decision has not yet been made.
The correctness of the recent decision of the Western Cape High Court in Hendricks v City of Cape Town 2011 (6) SA 88 (WCC) is open to question, in holding that a notice given by a municipality to informal traders, requiring them to dismantle and then re-erect their structures on a daily basis, constituted administrative action. It is arguable that such a notice was merely antecedent to administrative action, and that this decision cannot be reconciled with that given by the same court in City of Cape Town v Bouley Properties (Pty) Ltd  ZAWCHC 650.
Many categories of administrative action taken by SARS have yet to be taken on judicial review, including a decision to decline the taxpayer’s request that his obligation to pay a disputed amount of tax be suspended, pending a determination of liability on appeal. The approach that the courts will take in such applications is still completely uncertain.
In short, there are many aspects of tax administration and taxpayers’ rights that are still unresolved and await authoritative determination by the courts.
Source: By RC Williams Professor in the School of Law, University of KwaZulu-Natal (TaxTalk)