Analysis: Taxpayer Remedies
07 October 2013
Posted by: Author: Beric Croome
Author: Beric Croome (ENS)
A functional, ethical and skilled South African public sector is vital for positive and lasting change.
The Tax Administration Act, No 28 of 2011 (the TAA) took effect on 1 October 2012, and seeks to enhance the rights that taxpayers have in their dealings with the South African Revenue Service (SARS).
Previously, for example, a taxpayer had no right to expect a report from SARS as to when an audit was likely to be completed, or the status thereof. In terms of section 42 of the TAA, SARS is now obliged to issue a report to a taxpayer 90 days after the audit has commenced and within 90-day intervals thereafter, setting out the scope of the audit and the status thereof.
When a taxpayers choose to dispute an assessment and lodges an objection against that assessment, he or she is entitled to request the postponement of the disputed tax in terms of section 164 of the TAA. While SARS is considering the application for the postponement of payment, it is precluded from taking steps to recover the tax from the taxpayer until a decision is made on the postponement application.
Where a taxpayer fails to adhere to the provisions of the fiscal statutes, the Commissioner is empowered to take action against that taxpayer to ensure compliance with the laws of the country and to enhance tax compliance. For example, the Commissioner may initiate recovery proceedings where the taxpayer fails to pay assessed tax in time, by either filing a statement with the court, which has the effect of a civil judgement against the taxpayer, or can appoint any other person holding funds on behalf of the taxpayer as the taxpayer's agent, and direct those funds to be paid over to SARS in satisfaction of the taxes due.
Unfortunately, where SARS fails to adhere to its obligations in respect of its dealings with taxpayers in terms of the TAA, taxpayers have no remedy in the TAA itself, and SARS officials are not subject to any form of legal sanction under the provisions of the TAA.
The TAA does, however, create the office of Tax Ombud to deal with administrative difficulties faced by taxpayers in their dealings with SARS. The TAA requires that the Tax Ombud be appointed within 12 months of the TAA taking effect, that is, no later than 30 September 2013. A taxpayer is entitled to approach the Ombud for assistance once they have exhausted the existing SARS internal complaint resolution mechanisms. The Ombud is required to review complaints and to facilitate resolution thereof, so as to enhance taxpayer compliance in the country.
It is unfortunate that the Tax Ombud does not have the power to direct SARS to refrain from taking action against taxpayers while investigating complaints, as is in the USA. The Taxpayer Advocate in the USA is entitled to issue so-called ‘Taxpayer Assistance Orders' directing the Internal Revenue Service (IRS) to refrain from taking certain steps against taxpayers while a complaint is being investigated.
Too often, taxpayers face situations where SARS does not comply with the provisions of the law and initiates recovery procedures by filing statements in court, which has the effect of a civil judgment against the taxpayer despite the new requirement that SARS is required to give a taxpayer ten days' notice before initiating the judgment procedure.
In other cases, taxpayers are experiencing extreme difficulty in securing tax clearance certificates as a result of adjustments made to assessments, particularly VAT assessments, with little or no details being supplied to taxpayers as to the nature of the adjustments made.
The only recourse available to taxpayers would be to seek the assistance of the Tax Ombud once that person has been appointed. An alternative remedy would be to approach the High Court for relief by way of judicial review of SARS' conduct in accordance with the rules of the High Court and on the basis that SARS has failed to comply with the provisions of the Promotion of Administrative Justice Act, No 3 of 2000, and the taxpayers' right to administrative justice contained in section 33 of the Constitution of the Republic of South Africa, No 107 of 1996.
Unfortunately, the cost of litigation is high and time consuming and often the nature of the disputes with SARS is not substantial in monetary terms, which results in the legal costs exceeding the tax in issue. As a result, taxpayers refrain from applying to the courts for relief where SARS has abused its powers.
In a number of overseas jurisdictions, taxpayers are entitled to recover damages or wasted costs from the revenue authority where the revenue has abused its powers and resulted in the taxpayer incurring unnecessary expenditure. It is most unfortunate that the TAA does not provide for a legal basis whereby taxpayers may seek the recovery of wasted costs and/or damages from SARS when it has abused its powers in dealings with taxpayers. As a matter of law, taxpayers should be entitled to recover wasted costs incurred where SARS has acted badly in dealing with taxpayers.
Furthermore, SARS is entitled to lodge formal complaints against registered tax practitioners under the provisions of the TAA and will no doubt do so since the new rules regulating tax practitioners took effect on 1 July 2013. Where a SARS official, for example, refuses to accept the delivery of legal documents or has acted contrary to the provisions of the fiscal statutes, taxpayers are unaware of the process to follow in pursuing a complaint against a specific SARS official.
SARS should disclose on its website and other material released to the public the process to be followed by a taxpayer wishing to lodge a formal complaint against an official for maladministration or abuse of power.
The draft Tax Administration Laws Amendment Bill of 2013 contains a proposal that the Tax Court will, in future, be permitted to deal with the review of decisions taken by SARS regarding income tax appeals, which previously may only have been heard by the High Court or the Magistrate's Court.
In conclusion, therefore, it is clear that SARS has extensive powers to take action against taxpayers who fail to adhere to the provisions of the fiscal laws of the country. It is most unfortunate that the TAA does not contain any specific sanction on SARS itself or its officials where obligations imposed on SARS and its officials are disregarded. It is hoped that the Tax Ombud will investigate the significant administrative frustrations currently experienced by taxpayers with a view to resolving systemic issues, thereby enhancing tax compliance in South Africa.
International research has shown that, where taxpayers believe that they have been abused by a revenue authority, tax compliance will decline as a result thereof. The only effective remedy which taxpayers have where SARS fails to adhere to its obligations in the TAA is to seek relief from the High Court and an order of costs against SARS on a client-attorney basis and, in appropriate cases, to consider seeking an award of legal costs to be paid by SARS officials in their personal capacity, known as costs de bonis propriis.
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This article first appeared in Accountancy SA (October 2013)