Tax act could be subject to litigation, says Davis
21 May 2013
Posted by: Author: Evan Pickworth
Source: Evan Pickworth (BusinessDay live)
It may take a long time to bed down what the new Tax Administration Act
means because there are a host of sections which could be subject to
litigation, according to high court judge and government tax review head
The review was set in motion in February by President Jacob Zuma and
Finance Minister Pravin Gordhan to investigate the effect of tax on
employment, growth and development.
Judge Davis, who last year dismissed the government’s appeal against the
R16.5bn Walmart-Massmart merger and made provision for Massmart to
contribute a maximum of R200m to a supplier development fund that would
develop small and medium business, is particularly concerned about the
potential effect of the act on small business.
"When it comes to small business we have to think very carefully if this
act has struck the balance properly between rights of the taxpayer and
South African Revenue Service (SARS) powers. What I mean is, in terms of
transactional costs and levels of complexity," he said yesterday. The
balance was being properly struck for bigger businesses, in his view.
Judge Davis told a national tax conference he was surprised he had seen
so few administrative matters come before his court, and cautioned that
some of the broader elements of the new tax rules — like the ones
allowing senior tax officials to make decisions which may have serious
consequences — may open the door to challenges.
The new Tax Administration Act last year gave SARS powers to search and
seize without warrants in some instances, but the courts have already
limited this right by balancing it against the right to privacy and
dignity in parallel tax legislation (the Customs and Excise Act).
Tax officials should be aware of the Promotion of Administrative Justice
Act and the fact that tax courts, being creatures of statute, cannot
deal with issues of regulation, said Judge Davis, who was recently
re-appointed to his longstanding role as judge president of the
Competition Appeal Court.
International tax attorney Daniel Erasmus told the conference SARS had
to act in a lawful, reasonable and procedurally fair manner, adhering to
its constitutional obligations. "A failure to do so would render its
decision to invoke its powers … liable to be set aside on review on any
applicable codified review grounds stated in section 6(2) of the
Promotion of Administrative Justice Act."
ENS director of tax Robert Gad said it was difficult to get certainty on
tax issues and it was "taking years to get to finality".
ENS’s Michael Katz, head of a prior commission of inquiry into tax
reform, said South Africa’s tax system had become complex over the years
as numerous additions were lumped into the 1962 Income Tax Act.
Lawyers and tax practitioners at the conference highlighted numerous
concerns, notably over SARS’ warrantless search and seizure powers,
incomplete requests for audits and how privileged or sensitive
information will be protected if it forms part of a request for further
information by SARS.