Tax Clearance Certificates: How important are they?
14 June 2012
Posted by: Stiaan Klue
A tax clearance certificate provides written confirmation from SARS that a taxpayer’s tax affairs are in order at the date of issue of the Certificate. As a result Industry places a high regard on tax clearance certificates. In many instances these certificates become a prerequisite for the final approval of business contracts. The clearance certificates are required by Industry for a number of reasons: the leasing of a property, emigration and government tenders.
Taxpayers can officially apply to SARS for a tax clearance certificate in respect of tenders, emigration and foreign investment allowances. Government uses the tax clearance certificate system as a mechanism to determine the compliance culture of individuals and organisations.
Given the general importance placed on tax clearance certificates, SARS is obviously under an obligation to ensure that they issue the certificates timeously and with the correct information. From a statutory perspective, however, there is no specific provision governing the issuing of tax clearance certificates in South African tax law. Over the years this practice developed purely from an administrative arrangement within SARS.
On 30 May 2012, Judge Wright in the North Gauteng High Court issued an interim interdict against SARS for withdrawing a clearance certificate issued to a taxpayer. Essentially the court said that the withdrawal was unlawful because the taxpayer was not afforded an opportunity to make representation to SARS before the decision was taken to revoke the certificate. The decision by SARS to issue and then withdraw the certificate was considered tantamount to an administrative action by SARS. The court alluded to the fundamental rule of administrative justice as envisaged in the Constitution of the Republic and the Promotion of Administrative Justice Act, being that parties whose rights could be negatively affected by an administrative decision have the right to be heard. Judge Wright reminded us of the fact that all actions, including failing to act, by SARS is an administrative action and may be challenged by taxpayers.
Seeing that tax clearances has become such an integral part of the South African economy, perhaps it is now time for the legislature to formalise the administration and application thereof to protect both SARS and taxpayers.
By Stiaan Klue, Chief Executive, SA Institute of Tax Practitioners