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To Pay Or Not To Pay - Does A Taxpayer Have Any Rights Against Penalties?

01 February 2006   (0 Comments)
Posted by: Author: Kerry Watkin
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To Pay Or Not To Pay - Does A Taxpayer Have Any Rights Against Penalties?

As a general rule of thumb, SARS’s letters of findings and/or assessments impose penalties on the unsuspecting taxpayer.A standard extract from a SARS letter may read as follows: "It is our intention in terms of section…to impose penalties in the amount of 200%...Please provide us with detailed reasons in writing as to why we should not impose penalties in the circumstances.”

One of the crucial requirements of relevant tax law sections which levy penalties is that there must not be an intention to evade or postpone the payment of tax, meaning that the taxpayer must not have deliberately tried to evade tax imposed upon him by law.The section hinges on this criterion.In the event that the taxpayer had no intention to evade tax, the section imposing penalties should not be invoked and penalties should not be levied.

It therefore stands to reason that SARS has erred when it sent a letter such as the one quoted above.It follows that SARS has to determine whether there is any evidence suggesting that the taxpayer wilfully and knowingly took steps to evade the payment of tax.Should SARS be satisfied that such evidence exists, it has to impose penalties.The onus is therefore initially on SARS to prove that the taxpayer had intent.This is in accordance with the general principle that the onus of proof rests on the prosecution(in this case, SARS).

The presumption of innocence, which is another way of saying the prosecution bears the burden of establishing the elements of fraud beyond reasonable doubt, is arguably the most fundamental aspect of due process.Not only is due process threatened by placing of the onus on the taxpayer but, under the current state of the South African law, a situation of gross inequality of treatment of taxpayers could result from the reverse onus.

Accordingly, SARS must first prove the taxpayer had there quisitentent.The burden then shifts to the tax payer to disprove.It is wholly unfair and to merely impose maximum penalties.If no circumstances or evidence exist to suggest that it was a wilful act by the taxpayer which led to non-compliance with the intent to evade the payment of tax,SARS is no tent it led to impose penalties.

Moreover, a meeting in this regard was held at SARS Head Office between representatives of SAICA, CFA and SARS Enforcement on 11 January this year.The issues discussed were recorded in notes. Paragraph 1.1 of the notes addressed Imposition of Penalties and provides that: -"…the policy with regard to the imposition of penalties was for the SARS auditor to raise a penalty according to SARS guidelines , which is then referred to a penalty committee chaired by a specialist or suitably qualifies person.The committee takes into consideration all the facts and circumstances and takes a decision as to whether to uphold the auditor’s decision or to amend the penalty percentage.The final penalty is then approved by an audit manager.SAICA noted that although SARS had previously indicated that taxpayers should be allowed to attend the above mentioned committee meetings, this was not taking place in most cases.

SARS confirmed that taxpayers should be allowed to at tend these meetings and that SARS will communicate this to all SARS of f ices.SARS noted that reasons for charging a certain penalty would always be available to the taxpayer.” [Our underlining] The above indicates that SARS is obliged to consider all the relevant facts of the taxpayer’s case and apply its mind there to.Furthermore,the taxpayer is afforded an opportunity  to attend a committee meeting.SARS is also expected to provide reasons as to why penalties are raised.

The notes go on to address Completion of audit and state that: -"CPA raised concern  regarding SARS practice of indicating at the end of an audit that a 200% penalty would be imposed unless the taxpayer could justify a lower percentage.SARS confirmed that this was not the correct practice and that the wrong template had been used in such cases.” [Our underlining] In light of the above, if SARS imposes penalties, it is compelled to establish and furnish grounds evincing the taxpayer’s intention.If it fails to do so, the burden of proof that rests with SARS has not been discharged and penalties may not be levied.

When it comes to penalties, the taxpayer has numerous rights against SARS. He may request adequate reasons which SARS is compelled to furnish and he may bring a review application if officials failed to apply their minds to his case and if they capriciously imposed penalties.There is also the objection and appeal procedure which is always available to the taxpayer.Of course there are taxpayer s who are guilty of offences where they intentionally tried to evade the payment of tax.In these instances the taxpayer is entitled to request the Commissioner to exercise his discretion to remit penalties.

In summary, the taxpayer need not lie down and accept the penalties imposed upon him by SARS. There are empowering provisions in terms of the Income Tax Act, the VAT Act and the Promotion  for Administrative Justice Act, No 3 of 2000, together with the Constitution which afford the taxpayer rights against the imposition of penalties

Source: By Kerry Watkin (TaxTALK)


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