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The Commissioner’s Theory of Evolution: The Origin Of eFilling

01 August 2010   (0 Comments)
Posted by: Author: Hennie van Deventer
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The Commissioner’s  Theory Of Evolution: The Origin Of eFilling

I am told that the Latin phrase Quid novi means What’s new? and apparently it was the way people would greet one another back in the day.Yet, it remains one of life’s great paradoxes.People always want to know what is new in the world and yet we generally do not take change all that well.There are still many tax professionals who have not as yet embraced eFiling.They know about it, but for some reason which I am sure they are justifying on a daily basis, they have not embraced it.There probably is no denying that eFiling has reached cult status (even if it is only amongst those who had developed it. SARS is even developing international award winning software in E@syfile these days).Revenue collection has grown exponentially and the South African tax base has also seen a boom as a result.However, the questions are:

-At what cost to the fisc and the taxpayer?

-Can an IT system really interpret and apply tax legislation?

Let’s Go Techno

In the 90s,it was not just music that went techno.In the 90s,SARS embarked on an exercise to revisit its structures in order to make it more efficient and effective.This brought about a project named Siyakha. As far as assessments were concerned,it was discovered that the assessors were not achieving the desired number of assessments per annum due to the constant interruption of Alexander Graham Bell’s invention.SARS was about to experience evolution at the speed of light (those Darwin supporters will tell you that evolution is the change over many generations).  

One of the steps was to have more efficient electronic tax systems.Towards the end of 1999, the New Income Tax System (NITS) was rolled out to SARS offices around the country (just in time to test the Y2K theory?).Since then, eFiling, E@syfile, taxpayer service centres, processing centres, assessment centres, enforcement centres and contact centres were introduced.eFiling is more effective and makes it easier for taxpayers to render a return (no supporting documents required) allowing SARS to allocate more resources to enforcing tax legislation rather than ensuring compliance with it. 

The Cost Issue

Section 195 (1)(b) of the Constitution requires an efficient, economic and effective use of resources.This notion is also endorsed by SARS in their service charter.It is stated that a taxpayer is entitled to expect SARS to minimise the burden and cost of compliance for the taxpayer (talk about establishing a legitimate expectation).Certainly in practice we have seen an increase in the cost and burden of compliance on the taxpayer.Because eFiling allows only for limited disclosure (no supporting documents remember) there seemingly has been an increase in requests for information (those lovely send-us-absolutely-everything requests from SARS due to some mismatch.) 

Do you ever wonder why SARS would require an IT3(b) if the mismatch is employment related?The sad thing is that too many taxpayers and tax practitioners often  skrik hulle oor ‘n mik and simply proceed to furnish absolutely everything to SARS. The cost here is time. SARS’s and the taxpayer’s. Someone at SARS is likely clicking the button to generate the query.The system tracks the time between the first request and issues a final demand where required.If the taxpayer has uploaded the information on eFiling, a SARS employee must go and locate it.If the information was submitted manually at a branch office, it is scanned and then uploaded. More time and costs.The cost here for the taxpayer is time! Because eFiling is allowing for only limited disclosure.I am not even going to get into the other issues of a mismatch query:

-The omission of any of the relevant statutes relating to a request for information.

-The fact that the state is holding information on the taxpayer that he is aware of and therefore brings the Promotion to Access of Information Act (PAIA) into play.(How else would they be able to advise of a mismatch?)

-How can the Commissioner possibly raise an assessment as defined,suggesting the application of his mind, and then issue amismatch of information query?eFiling is therefore not minimising the cost nor the burden of compliance,nor is SARS complying with the provisions of section 195 of the Constitution.

Application Of Law 101

Case law has established that legislation must be read as one, and not as separate,and the provisos should be considered to the principal matter.Where a public body disregards provisions, they are grossly irregular (clearly illegal) in their performance,and a court may be approached to review the decision.

Too illustrate my point;I will refer to paragraph20(1) of the Fourth Schedule of the Act.Every tax professional surely must have experienced this by now.You receive an assessment and yes, you guessed it, additional tax is charged. Paragraph 20(1) imposes additional tax upon the provisional taxpayer if he/she has underestimated their taxable income.However, the provisions of paragraph 20(1) specifically state that the imposition of additional tax is subject to subparagraphs (2),(3) and (4). Exactly,if it is subject to some other thing(s),how can it be imposed automatically?Application of law 101:Read the entire provision please.(Even if there is a moment where someone briefly looks at the taxable income assessed,compares it to the taxable income estimated and says:Impose I say, impose!” it matters not).

Subparagraph (2) deals with the fact that the Commissioner has a discretion if he is satisfied that the taxpayer did not act deliberately or was negligent in his estimation.In my mind, therefore,the taxpayer should be presented with an opportunity to explain the underestimation (the so called audi principle) and, based on this,the Commissioner must apply his discretion. If his decision goes against the taxpayer,then only should the sanctions of paragraph 20(1) be imposed.Justice Bayley wrote:"I know of no case in which you are to have a judicial proceeding,by which a man is to be deprived of any part of his property, without having an opportunity of being heard.”Therefore, based on certain principles laid down in case law namely:

-The audi principle requires a hearing to take place prior to a decision being made by an official or public body (such a hearing ensures that an administrator still has an open mind on a matter since it is natural human inclination to adhere to a decision once taken).

The wording of the provisions also brings up the very important matter of ‘discretion’.Once again,case law has established some principles in this regard, namely:

-Discretion requires the administrator to apply his mind and make rational decision which can be justified 

-To consider all the relevant factors and merits of all objections.

-A gross unreasonable exercise or mala fide of discretion is not an exercise of discretion at all.

-The courts will not overturn a decision if it is found that the administrator applied his mind,as it is the non-application of his mind that prevents a case of being fairly and fully determined.

It means that a simple glance at things and then invoking the sanctions of paragraph 20(1) is not the exercise of discretion.If the taxpayer was not allowed to make a representation,then how can the Commissioner have considered all the relevant factors and subsequently make a rational decision?If there was no loss to the fisc as a result of the omission,is it reasonable to still impose additional tax? (This can happen if the taxpayer omits his bonus for example,but includes all the other sources of income like remuneration and investment income in his estimation.)

Employee’s tax has been withheld so there is no loss to the fisc surely?It has come a l ong way,but I have yet to see an IT system that calls for a hearing,listens to the taxpayer and processes the facts relayed and reaches a decision.This brings me back to my original questions around eFiling.

-At what cost to the fisc and the taxpayer?

-Can an IT system really interpret and apply tax legislation?

You decide.One last thought from the managing director of an established tax software company: "It is very dangerous if your IT department star ts running your business.

Source: By Hennie van Deventer ( TaxTALK)


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