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Audited – Not again!!

Thursday, 23 October 2014   (0 Comments)
Posted by: Author: Pieter Faber
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Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy)

On a weekly basis we hear complaints from taxpayers and tax practitioners alike about frustrations of their clients being under continual audit by SARS.

The "audit” measures from SARS seem to constitute various processes and range from the mere verification procedures, to desk audits where selective documents are requested to full blown field audits. "Audit” in it colloquial sense entails an inspection and verification of the supporting information retained in corroboration of the return or other information submitted by the taxpayer. Taxpayers in many instances feel aggrieved and victimised if they are selected for an audit time and time again, especially if the audit does not render any adjustment from SARS.

The first question taxpayers raise is whether they have a legal right to complain about this process or if they can in fact resist it as being legally unreasonable. As a general principle it should be noted that as part of SARS’ responsibility to administer tax Acts, it must obtain full information in respect of matters affecting a taxpayer’s tax liability as well as to ascertain whether a taxpayer has filed correct returns or documents. Furthermore SARS has wide discretion as to why and how they may select taxpayers for audit or verification. Where the audit is within this scope and conducted administratively fairly the taxpayer would not have grounds to resist or raise legal objection.  

So what is the scope of all these "audits” and what does the law require the taxpayer or SARS to do. 

Field audit

A field audit requires prior notice and specified information to be made available by the taxpayer to SARS. It however does not limit SARS as to the time it may take to conduct the audit and does not limit SARS as to the scope of the audit to be conducted. SARS is merely required to keep the taxpayer informed every 90 days of the progress made and upon completion inform the taxpayer whether it was inconclusive or whether adjustments were identified. The information that SARS may request would be limited to "relevant material”. 

Request for relevant material

When the "audit” is conducted by SARS by requesting "relevant information”, SARS must in our view provide the taxpayer with a written notice of the information required. The request for relevant information is only limited to records required to be retained if the request is in respect of someone other than the taxpayer.  SARS can also determine the form and place where the information must be submitted. 

Inspection of records

SARS may also request the taxpayer to inspect the books, documents and records as required to be retained, which must then be made available to SARS for inspection during reasonable times.

Though an inconvenience, the auditing of documents and records on site should not cause taxpayers frustrations as these records should be readily available, though for many small businesses this administration remains a challenge that they would have to overcome. 

The first actual frustration from these processes would seem to be where documents are to be made available in a form other than the original or at place other than the taxpayer’s premises. Here there seems both time and cost constraints on especially small taxpayers in changing the form and providing it physically, orally or electronically to SARS. Coupled with this is the frustrations of SARS’ "internal mail system” which does not always send the information to the relevant person, resulting in unnecessary further actions against the taxpayer such as requests to resubmit or even questionable additional assessments. 

The next challenge facing taxpayers is that of supplying "relevant information” which to a large extent is subjective, as it is information that SARS deems relevant for nearly any purpose and may include information that is not necessary a document or record that the taxpayer must retain but rather the processing of such information. Taxpayers also become apprehensive when documents that are not records which have to be retained are requested such as internal emails and opinions sought as they may feel, though most probably wrongly so, that SARS is fishing for information to subject them to more tax. It should be remembered that tax is not just about hard facts but also context of those facts such as intention and purpose. It is for the latter that SARS may request this information. Small taxpayers as assisted by their tax practitioners should therefore to some extent anticipate which are the contentious matters such as deductions or income that is either capital or revenue and attempt to have readily available the relevant "other supporting documents” which  can indicate intent and purpose. 

In an ideal world SARS would not be culpable to wrong doing but in the real world they are. Where the requests are unreasonable (i.e. requires processing of a lot of information held in a short period of time) or the audit administratively unfair (i.e. auditing the same expense for the same period and requesting the same documents for the repeated audit) then taxpayers should at first instance engage with SARS as to the reasonability of the request or procedure. Secondly taxpayers should not shy away from using the Tax Ombud mechanism created for this exact purpose, but only once they have confirmed with a tax specialist that the grievance is valid. Ensuring that your tax administration is in order is most probably the first step to less frustrations and worries when SARS comes knocking at the door, though I am sure that they will not disappear completely irrespective of how good it is. The test in many instances would be what is reasonable and fair and taxpayers would do well to understand from their tax specialists what is reasonable and fair in any given circumstance.



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.

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