A Taxpayer’s Right To Be Given A Reason For Assessment
02 January 2010
Posted by: Author: Stiaan Klue
A Taxpayer’s Right To Be Given A Reason For Assessment
Rule 3, promulgated in terms of section 107A of the Income Tax Act 58 of 1962 (the Act), provides that a taxpayer who is aggrieved by an assessment or decision of SARS is allowed to request reasons for the assessment or decision.The request for reasons must be done in writing and delivered to the SARS office where the assessment was issued, within thirty days after the date of the assessment.
A taxpayer may request SARS to extend the thirty-day period within which reasons may be requested.If SARS is satisfied that reasonable grounds exist for the delay in complying with the thirty-day period, the first thirty-day period may be extended with a maximum of another sixty days.If SARS refuses to extend the period as requested, the taxpayer may apply by application on notice to the tax court for an order granting such extension.
Where the Commissioner is of the opinion that adequate reasons have already been provided, he must, within thirty days after receipt of the notice wherein reasons were requested, notify the taxpayer in writing. The notice must refer to the documents wherein such adequate reasons were provided.The Commissioner is allowed to grant himself an extension of time under certain circumstances. If he is satisfied that additional time is required due to exceptional circumstances, the complexity of the matter or the principle or the amount involved, the Commissioner must, before expiry of that 60-day period, inform the taxpayer that written reasons will be provided not later than 45 days after the date of expiry of that first 60-day period.
Is there a prescribed form to request reasons?
There is no prescribed form that must be used for requesting reasons.The written notice must, however, specify the address at which the taxpayer will accept notice and delivery of such reasons and all documents in terms of the proceedings contemplated in rule 26. The concept ‘adequate reasons’ is not defined and it may rightfully be asked: What are ‘reasons’ and when will they constitute adequate reasons?
What are ‘reasons’ ?
Where the taxpayer requests reasons for an assessment in terms of section 3(1)(a) of the rules promulgated under s 107A of the Act, and SARS responds with reasons which the taxpayer believe not to be ‘adequate’, the ancillary provisions of rule 26 become significant. Rule 26 provides that;
(1) (A) Any decision by the Commissioner in the exercise of his or her discretion under rules 3(1)(b), 3(2), 3(3), 5(1) and 5(2)(c) will be subject to objection and appeal, and may notwithstanding the procedures contemplated in rules 6 to 18 be brought before the Court by application on notice.
(B)The Court may upon application on notice under this sub-rule and on good cause shown, in respect of a decision by the Commissioner under;
(i) rule 3(1)(b) or 5(2)(c), make an order extending the period prescribed therein ;(ii) rule 3(2) or 3(3), make an order remitting the matter for reconsideration by the Commissioner with or without directions to provide such reasons as in the opinion of the Court are adequate; or(iii) rule 5(1), make an order declaring that any objection deemed to be invalid by the Commissioner shall be valid.
In Qwa-Qwa Cash and Carry (Pty) Ltd v C: SARS, the taxpayer claimed that the goods which were the subject of the dispute were zero-rated for VAT purposes.SARS had assessed the taxpayer on the basis that the goods were subject to VAT at the standard rate, and imposed 200% additional tax.
The taxpayer objected to the assessment and, acting in terms of rule 3(1)(a), requested reasons for the assessment.SARS furnished a reply to this request in a letter, saying that adequate reasons had already been provided.
The taxpayer applied to court in terms of rule 26, contending that SARS had"failed to provide adequate reasons that would enable the Applicant to determine whether or not he agrees with the basis of the assessment and that it fully understands why the decision was taken against it, even if it does not agree with such decision ...”
The Tax Court held that (emphasis as in the original)"On a proper interpretation of rule 26(1)(b) in the context of rule 3(2), this Court can, on appeal,find that the Commissioner’s decision, suggesting that adequate reasons have already been given, is wrong because his reasons are inadequate, and direct the Commissioner to provide ‘such reasons as in the opinion of the Court are adequate’.The Court can also remit without directions as to what is adequate.and, furthermore, that "because of the specific wording of the rule, there is no room for the application of the principle in Maimela’s case that the High Court cannot order an administrative decision-maker who has furnished reasons, to give ‘further or better reasons’”.
The explicit nature of the rules in this regard leaves no room, in this context, for application of the principle laid down in Commissioner, Soumaker who has furnished reasons to give ‘further or better reasons’.In this case, the Commissioner had exercised his statutory powers under section 31(1) of the Value-added Tax Act to assess the amount of tax due by a taxpayer who did not calculate the VAT due by him properly or at all. Section 60 deals with an assessment to additional tax.
The court pointed out that the making of an additional assessment by the Commissioner involved the exercise of several distinct statutory powers and that the taxpayer, by virtue of rule 3(1)(a) was entitled to request the Commissioner to furnish reasons for the assessment, and that this applied to all the components of the assessment.
When will reasons constitute ‘adequate reasons’ ?
The accepted test, cited with approval in Minister of Environmental Affairs and Tourism v Phambili Fisheries, required the decision maker to explain his decision in a way which will enable a person aggrieved to say, in effect"Even though I may not agree with it, I now understand why the decision went against me.I am now in a position to decide whether that decision has involved an unwarranted finding of fact, or an error of law, which is worth challenging.”
The further criteria set out in Ansett Transport Industries (Operations) (Pty) Ltd and Another v Wraith and Others required that that decision maker should set out his understanding of the relevant law, any findings of fact on which his conclusions depend (especially if those facts have been in dispute) and the reasoning process which led him to those conclusions and he should do so in clear and unambiguous language, not in vague generalities or the formal language of legislation.The following statement from Hoexter, The New Constitutional and Administrative Law, approved by the Supreme Court of Appeal in the Phambili Fisheries case, supra, stated that"It is apparent that reasons are not really reasons unless they are properly informative.They must explain why action was taken or not taken; otherwise they are better described as finding or other information.”
The court pointed out the following dictum of Kirk-Cohen J in Rean International Supply Co (Pty) Ltd v Mpumalanga Gaming Board "On the one hand it is not necessary for an administrative body to spoon-feed an aggrieved party seeking reasons: on the other hand the administrative body cannot expect an aggrieved party to seek justification for the reasons from a myriad of documents where such reasons cannot reasonably be determined.”
In the event that a taxpayer is of the view that adequate reasons for the assessment were not provided and is able to demonstrate this fact on good cause shown, the taxpayer may apply in terms of rule 26 to the Tax Court for an order remitting the matter for reconsideration by SARS, with or without directions to SARS to provide such reasons as in the opinion of the Court are adequate.
The right to request reasons for an assessment in essence enhances taxpayers’ rights under the Constitution of the Republic of South Africa and encapsulates a manifest aspiration for an equitable and fair system operated by state organs. unlike the taxpayer, the Commissioner does not have to show his hand before the hearing in the Tax Court, and may rely on any ground at the appeal.In Arepee Industries Ltd v CIR Galgut J observed that:
"While it is by now well established that the Commissioner is not obliged to disclose his grounds in advance of the appeal, any facts that he may wish to rely on must be placed before the court by calling the necessary witnesses, and any documents he wishes to prove will also have to be put in through such witnesses. It will be in the course of the hearing at the latest that the taxpayer will become aware of what facts and submissions the Commissioner relies upon, in short his grounds, and the taxpayer will thereby be left in no doubt what prejudicial facts or submissions he will have to meet in presenting his case in the appeal. It is at the hearing itself that the Commissioner’s case must be presented, and it is only what is raised by him at the hearing that is of any relevance to the matters in issue. In this connection the Commissioner’s reasons are totally irrelevant, for it is not his reasons that are in any way at stake in the hearing before the Tax Court.”
1.Silke on Tax Administration (Klue et. al).
2.Hoexter, The New Contitutional and Administrative Law (Hoexter et. al).
Source: By Stiaan Klue (TaxTALK)