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The Draft Administration Bill And What It Means For Taxpayers

Thursday, 04 March 2010   (0 Comments)
Posted by: Author: Kerry Watkin
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The Draft Administration Bill And What It Means For Taxpayers

The purpose of the draft Tax Administration Bill (TAB) is to incorporate into one piece of legislation certain generic administrative provisions.These provisions include,for example,the objection and appeal procedures,search and seizure provisions,and provisions relating to secrecy and collection processes,to name but a few.

Whilst in theory a very useful,practical tool for taxpayers to be able to rely  upon,in reality,the TAB has extremely disturbing provisions which would undermine taxpayers’ fundamental rights enshrined in the Bill of Rights.It is a universal principle that no organ of state should have absolute power in the belief that that power will diligently be exercised by competent civil servants only against those who, by undefined standards, are deserving victims.There are far too many examples of abuse to justify the belief that additional  powers will be exercised  responsibly.Unfortunately,the TAB seeks to bestow excessive,unconstitutional powers on SARS officials.

Whilst we appreciate that the collection of  tax is of  national importance and necessitates the limitation of certain rights, we question whether some of the provisions in the TAB are in fact justifiable and would pass constitutional muster.We highlight a few examples.

Payment obligations

We have addressed the new sections 88 of the Income Tax Act and 36 of the VAT Act in a previous article.However,it is noteworthy that the TAB also seeks to enforce payment of an assessment immediately upon its issue.The previous procedure before the amendment recognised the right of the taxpayer to be heard before an administrative decision adverse to its interests was taken. Now, the taxpayer ’s right is infringed by a provision which enables the Commissioner to demand payment of an assessment immediately upon its issue and before hearing the taxpayer the correctness of the assessment or on the reasons for suspending the payment obligation.

In testing the constitutionality of the power now sought by SARS to enforce payment of an assessment upon its issue,regard must be had to all of the other provisions in the TAB which support that power. The taxpayer is left without remedy.Civil judgment may be entered against it,sometimes without prior notice;its assets are rendered subject to seizure;SARS may apply for the sequestration or liquidation of the taxpayer and the court may make any order requested by SARS whether or not the court has jurisdiction over the person of the taxpayer;the assets of third parties become liable to attachment;the taxpayer can in the circumstances be prevented from travelling,or carrying on business or collecting debts owed to it by other organs of state or be subjected to any of the other restrictions contemplated in the TAB.These provisions constitute unjustified limitations on the rights of taxpayers.

Furthermore,the taxpayer’s right to ‘argue’ within a reasonable time is not readily available.The taxpayer is unable to influence the process to secure a hearing in the tax court.SARS controls the Tax Court roll; SARS decides on the matters which are to be prioritised; and SARS prepares the roll.For this rule to pass muster,at the very least,a procedure which facilitates expeditious access to court should be established.


The definition of ‘relevant material’ in the TAB is "any information or document or thing which may be useful to SARS in assessing or collecting a tax or to show that a tax offence has been committed”.This casts the net extremely  wide  and,in so doing,encapsulates privileged material.

We hope that the abolition of the taxpayer’s right to claim the protection afforded by legal privilege is unintentional and that SARS will abide by international best practice and common law rules which uphold professional privilege.For now, taxpayers should be mindful that such a provision could be open to abuse.Any attempt by SARS to obtain privileged material should therefore be challenged on the basis that it should not be left to the taxpayer to decide whether a particular document or thing would be ‘useful’ to SARS for the stated purposes.The only relevant material should be the documents specifically requested  by  SARS for the purposes of the act.

SARS as prosecutor

The TAB also permits SARS to liaise with the prosecuting authorities regarding all things required for the due prosecution of tax and other offences.The prosecuting authority must deal fairly with any charge made by a complainant,have due regard to the rights of  the accused person and decide independently whether to proceed with a prosecution.It seems wholly inequitable to charge SARS–as the complainant,who is another organ of the executive arm of government–with such responsibilities.The NPA should be an entirely separate and distinct body that is entitled to exercise its functions independently and without prejudice. Accordingly,SARS should not be entitled to play two roles in the prosecutorial process.

SARS as creditor

The insolvency laws of South Africa currently afford SARS a preference,to the prejudice of all concurrent creditors,in respect of taxes owed by the insolvent taxpayer.There are many provisions in the TAB aimed at further empowering SARS officials to ignore established principles of law.

It is now provided that SARS may bring sequestration or liquidation applications in "any court” and that that court may grant any SARS should not have the power to launch liquidation applications on the   strength of untested allegations of a tax liability.It seems completely unfair that a taxpayer must ‘pay now and argue later’ and then face sequestration soon after the issue of the disputed assessment. 

The company and insolvency laws provide extensively for some of the matters covered by some of the provisions of the TAB.However, the TAB affords SARS,as a creditor of the insolvent estate,with additional remedies.For instance,it holds innocent persons liable for the tax debts,alleged but not proved,of the company in liquidation.The result is that a person,who is not the delinquent taxpayer,and who might indeed be an upstanding compliant taxpayer innocent of all wrongdoing,is rendered jointly and severally liable to pay the unpaid tax (including by definition penalties and interest). 

Directors and officers of a company,and even others who are not office bearers of the company,are rendered personally liable for the debts of the company unable to pay its debts in the circumstances contemplated in s424 of the Companies Act.Liability is dependent on knowingly being a party to the delinquency and upon an order of court. The TAB, however,seeks to hold representative taxpayers, withholding agents,responsible third parties and innocent transferees personally liable for the (alleged) tax debts of others without any requirement of fault or an order of court. 

The aforegoing are just a few issues which have been identified but taxpayers should be vigilant of the draconian powers SARS has been  entrusted  with  when  it comes  to the recovery of tax,read in conjunction with sequestration and liquidation proceedings together with collection of tax debts from third parties.Because the TAB provisions endow even more power upon SARS officials than the Insolvency and Companies Acts,it  will be interesting to see which statute prevails and how legislature intends aligning the different acts.

SARS as tax collector for foreign governments

The TAB deals with SARS as the tax collector of foreign governments.There used to be a shortened process similar to the recognition in South Africa of a final judgment granted by a foreign court.All of the past procedural safeguards have gone. There no longer needs to be a final determination of the liability in terms of the laws of the foreign country.The procedural safeguard of the involvement of the President of the Tax Court has also been done away with.Furthermore,the TAB provides that where the foreign entity states that the taxpayer is disputing the liability solely to delay or frustrate collection,that statement becomes conclusive against the taxpayer in any proceedings.

There is no constitutional justification for SARS to intervene on behalf of a foreign creditor and to condemn a citizen of this country on the basis of the untested claims of a foreign tax collector without due process.This provision in the TAB entitles SARS to collect from the taxpayer,without due process, and to transmit the collected amount to the competent authority in the foreign country without even checking whether the taxpayer has been or will be granted the right to contest the claim before a court of law.There is no conceivable basis on which this procedure is constitutionally justified.

The above is a summary of the constitutional criticisms of only some of the provisions in the draft TAB. In its current form,it is fraught with problems and will have dire consequences for taxpayers if the powers afforded to SARS officials are abused.In an effort to prevent such harsh provisions from becoming law,the public has been given an opportunity to comment on the bill. We would urge all readers to submit their comments to SARS because the effect of the TAB,if promulgated as is,could have major repercussions on even the most honest,compliant of taxpayers.

Source: By Kerry Watkin (TaxTALK)



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