Print Page   |   Report Abuse
News & Press: SARS News & Tax Administration

Proposed amendments to section 98(1)(d) - withdrawal of assessments

11 August 2015   (0 Comments)
Posted by: Authors: Nina Keyser and Joon Chong
Share |

 

Authors: Nina Keyser and Joon Chong (Webber Wentzel)

The draft Tax Administration Laws Amendment Bill, 2015 (TALAB) proposes to amend section 98 to allow SARS to withdraw assessments only in very specific circumstances.

The current section 98(1)(d) was inserted by the Tax Administration Laws Amendment Act 39 of 2012 to deal with erroneous assessments which are discovered after all prescription periods and remedies have expired and it becomes apparent that it would be unreasonable and inequitable to recover the tax due under such assessments.

 Currently, section 98(1)(d) provides that SARS may, despite the fact that no objection has been lodged or appeal noted, withdraw an assessment which, in respect of which the Commissioner is satisfied that -

(i)                    it was based on

(aa)      an undisputed factual error by the taxpayer in a return; or

(bb)      a processing error by SARS; or

(cc)      a return fraudulently submitted by a person not authorised by the taxpayer;

(ii)                   it imposes an unintended tax debt in respect of an amount that the taxpayer should not have been taxed on;

(iii)                  the recovery of the tax debt under the assessment would produce an anomalous or inequitable result;

(iv)                 there is no other remedy available to the taxpayer; and

(v)                  it is in the interest of the good management of the tax system.

The draft TALAB however, amends section 98(1)(d) to provide that SARS may, despite the fact that no objection has been lodged or appeal noted, withdraw an assessment in respect of which the Commissioner is satisfied that

·                     it was based on -

(aa)      the failure to submit a return, or submission of an incorrect return, by a third party under section 26 or by an employer under a Tax Act;

(bb)      a processing error by SARS; or

(cc)      a return fraudulently submitted by a person not authorised by the taxpayer;

·                     the taxpayer has exhausted all remedies under this Act or the period referred to in section 104(3) has expired; and

·                     it is in the interest of the good management of the tax system.

Section 98(1)(d) currently allows SARS to withdraw an assessment in terms of section 98 where there is, amongst others, an undisputed factual error by the taxpayer in a return. With the proposed amendment, section 98(1)(d) provides for SARS to withdraw an assessment where there is, amongst others, errors made by parties other than the taxpayer, ie when a third party or employer has failed to submit a return or submitted an incorrect return. The amended section 98(1)(d) cannot be used to withdraw assessments even when there is an unintended tax debt or if there is an anomalous or inequitable result, unless the error was due to the above, to a processing error by SARS or to a return fraudulently submitted by an unauthorised person. According to the draft Explanatory Memorandum (draft EM), this is to provide finality in a tax assessment.

The draft EM states that the current section 98(1)(d) was interpreted by taxpayers as a general mechanism to address their "old mistakes" in assessments that were final, where the taxpayer could no longer request a reduced assessment or where the objection process as well as appeals to the tax and higher courts had been exhausted. The insertion of section 98(1)(d) was not intended as a substitute to the above procedures or as a "post-appeal appeal" remedy to reverse an adverse judgment by the Supreme Court of Appeal.

The draft EM may be referring to the SCA judgement of Medox Limited v CSARS (20059/2014) [2015] ZASCA 74 (27 May 2015). In this case, the taxpayer had lost its appeal for a declaratory order to declare its 1998 assessment and onwards invalid. The taxpayer was also out of time to object to these assessments. Despite the view expressed in the draft EM, the current section 98(1)(d) could provide relief to the taxpayer not as a "post-appeal appeal" or to reverse an SCA judgment, but because there is an outstanding tax debt which should not be imposed and there is an inequitable result on the taxpayer. The purpose of the tax system is to impose and collect tax on economic gain by taxpayers. The taxpayer in this case had an economic loss and it was entitled to have its balance of assessed losses taken into account when determining its taxable income. This did not happen in its 1998 assessment and onwards.

As can be seen in other proposed amendments in the draft TALAB, there is increasing powers given to the Commissioner to request relevant information. The period of limitations for the finality of assessments can also be increased unilaterally by the Commissioner in specified circumstances. Further, it is also proposed that taxpayers only have six months from the date of assessment to request corrections for reduced assessments.

Taxpayers must object to assessments within the time period in section 104(3). Otherwise, the assessments become final for them. There will be no relief in the amended section 98(1)(d) even when there is an inequitable result if the error in an assessment does not arise from a non-submission or incorrect submission of a return by a third party or employer, processing error by SARS or fraudulent submission by an unauthorised person.

If the proposed amendment to section 98(1)(d) goes through, it will be of paramount importance for taxpayers to ensure that their tax returns are submitted correctly. Taxpayers must seek legal advice as early as possible to ensure that information disclosed in their tax returns is correct. Taxpayers should also seek legal advice as soon as possible in a dispute, preferably at the audit stage, but no later than the objection stage.

Please click here to access the quiz.

This article first appeared on webberwentzel.com.


WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

Membership Management Software Powered by YourMembership.com®  ::  Legal