Audited – Not again!!
23 October 2014
Posted by: Author: Pieter Faber
Author: Pieter Faber
(SAIT Technical Executive: Tax Law & Policy)
On a weekly basis we hear complaints from taxpayers and tax
practitioners alike about frustrations of their clients being under continual
audit by SARS.
The "audit” measures from SARS seem to constitute various
processes and range from the mere verification procedures, to desk audits where
selective documents are requested to full blown field audits. "Audit” in it
colloquial sense entails an inspection and verification of the supporting
information retained in corroboration of the return or other information
submitted by the taxpayer. Taxpayers in many instances feel aggrieved and
victimised if they are selected for an audit time and time again, especially if
the audit does not render any adjustment from SARS.
The first question taxpayers raise is whether they have a
legal right to complain about this process or if they can in fact resist it as
being legally unreasonable. As a general principle it should be noted that as
part of SARS’ responsibility to administer tax Acts, it must obtain full
information in respect of matters affecting a taxpayer’s tax liability as well
as to ascertain whether a taxpayer has filed correct returns or documents.
Furthermore SARS has wide discretion as to why and how they may select
taxpayers for audit or verification. Where the audit is within this scope and
conducted administratively fairly the taxpayer would not have grounds to resist
or raise legal objection.
So what is the scope of all these "audits” and what does the
law require the taxpayer or SARS to do.
A field audit requires prior notice and specified
information to be made available by the taxpayer to SARS. It however does not
limit SARS as to the time it may take to conduct the audit and does not limit
SARS as to the scope of the audit to be conducted. SARS is merely required to
keep the taxpayer informed every 90 days of the progress made and upon
completion inform the taxpayer whether it was inconclusive or whether
adjustments were identified. The information that SARS may request would be
limited to "relevant material”.
Request for relevant
When the "audit” is conducted by SARS by requesting "relevant
information”, SARS must in our view provide the taxpayer with a written notice of
the information required. The request for relevant information is only limited
to records required to be retained if the request is in respect of someone
other than the taxpayer. SARS can also
determine the form and place where the information must be submitted.
Inspection of records
SARS may also request the taxpayer to inspect the books,
documents and records as required to be retained, which must then be made
available to SARS for inspection during reasonable times.
Though an inconvenience, the auditing of documents and
records on site should not cause taxpayers frustrations as these records should
be readily available, though for many small businesses this administration
remains a challenge that they would have to overcome.
The first actual frustration from these processes would seem
to be where documents are to be made available in a form other than the
original or at place other than the taxpayer’s premises. Here there seems both
time and cost constraints on especially small taxpayers in changing the form
and providing it physically, orally or electronically to SARS. Coupled with
this is the frustrations of SARS’ "internal mail system” which does not always
send the information to the relevant person, resulting in unnecessary further
actions against the taxpayer such as requests to resubmit or even questionable
The next challenge
facing taxpayers is that of supplying "relevant information” which to a large
extent is subjective, as it is information that SARS deems relevant for nearly
any purpose and may include information that is not necessary a document or
record that the taxpayer must retain but rather the processing of such
information. Taxpayers also become apprehensive when documents that are not
records which have to be retained are requested such as internal emails and
opinions sought as they may feel, though most probably wrongly so, that SARS is
fishing for information to subject them to more tax. It should be remembered
that tax is not just about hard facts but also context of those facts such as
intention and purpose. It is for the latter that SARS may request this
information. Small taxpayers as assisted by their tax practitioners should
therefore to some extent anticipate which are the contentious matters such as
deductions or income that is either capital or revenue and attempt to have
readily available the relevant "other supporting documents” which can indicate intent and purpose.
In an ideal world SARS would not be culpable to wrong doing
but in the real world they are. Where the requests are unreasonable (i.e.
requires processing of a lot of information held in a short period of time) or
the audit administratively unfair (i.e. auditing the same expense for the same
period and requesting the same documents for the repeated audit) then taxpayers
should at first instance engage with SARS as to the reasonability of the
request or procedure. Secondly taxpayers should not shy away from using the Tax
Ombud mechanism created for this exact purpose, but only once they have
confirmed with a tax specialist that the grievance is valid. Ensuring that your
tax administration is in order is most probably the first step to less
frustrations and worries when SARS comes knocking at the door, though I am sure
that they will not disappear completely irrespective of how good it is. The
test in many instances would be what is reasonable and fair and taxpayers would
do well to understand from their tax specialists what is reasonable and fair in
any given circumstance.