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Know Your Rules

Sunday, 30 January 2011   (0 Comments)
Posted by: Author: W.A Vogel
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Know Your Rules
Over the past years, a lot has changed in the South African tax environment.Apart from the ever changing tax acts, electronic data transfers have soared.Launched in 2003, eFiling has grown significantly.In the 2009 tax year, more than 2.7 million individual tax returns were submitted through eFiling and annually over 7.5 million returns are submitted by businesses and practitioners.We have seen the launch of e@syFile and important developments in case law like the Metcash case. Although there have been many improvements, one specific area still causes much agony and frustration.With the current policies and procedures in place, a taxpayer can submit a tax return electronically and receive the assessment within three days but should a dispute arise...One taxpayer with first hand experience of the frustration in remedying one’s tax affairs is MA Sepataka whose case took more than six years to conclude.It all started with a lifestyle audit conducted on the taxpayer and an additional assessment subsequently raised on 24 April 2004.

Not every taxpayer has the resources to battle in the High Court, but what other remedies are available to an aggrieved taxpayer? On 1 April 2003, the ‘new’ rules promulgated under s 107A of the Income tax Act No. 58 of 1962 (hereafter referred to as ITA) came into play (GG 24639).It is imperative to take cognisance of the following facts:
•these rules apply, with effect from 1 April2003, in respect of all assessments issued, objections lodged or appeals noted on or after that date. 
•that Section 83(23) of the ITA defines a‘day’ as any day other than a Saturday, Sunday or public holiday: provided that the days between 16 December of a year and 15 January of the following year, both inclusive, shall not be taken into account in determining days or the period allowed for complying with any provision in this part or the rules.In light of the above-mentioned rules, the following process is available to an aggrieved taxpayer:
Request for reasons
Rule 3 provides that a taxpayer who is aggrieved by an assessment may request the Commissioner, within 30 days after the date of the assessment, to furnish reasons for the assessment.This must be done in writing and must be submitted to the SARS office where the assessment was issued.There is no prescribed form for the request.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.Upon request of the taxpayer, the Commissioner may extend the 30-day period with another 30 days.The Commissioner will allow this extension only if they are satisfied that reasonable grounds exist for the delay.
If the Commissioner refuses to grant the extension, a 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 notify the taxpayer thereof within 30 days after receipt of the taxpayer’s request for reasons.If in the opinion of the Commissioner adequate reasons have not yet been provided, he must provide written reasons within 60 days after receipt of the taxpayer’s request for reasons.Should the Commissioner require more time to provide reasons to the taxpayer he must, before the expiry of the 60-day period, inform the taxpayer that written reasons will be provided not later than 45 days after the expiry of the first 60-day period. 
Upon receipt of the written reasons, the taxpayer has 30 days to lodge an objection.If the taxpayer did not request reasons, the objection must be lodged within 30 days of the due date indicated on the assessment. If the Commissioner is satisfied that reasonable grounds exist for the delay in lodging the objection he may in terms of section 81(2) of the ITA provide a further 30 days to lodge the objection.
The decision by the Commissioner not to condone a late objection is subject to objection and appeal. (See s 81(3) of the ITA.)An objection must comply with the requirements set out in Rule 4.Thus, an objection must comply with the following:
•be in the prescribed form (ADR1).
•be in writing and must specify in detail the grounds upon which it is founded.
•specify the address where the taxpayer will accept notice and delivery of the Commissioner’s decision in respect of such objection.
•be signed by the taxpayer or his representative.If the representative signs the objection he must specify in an annexure the reasons why the taxpayer is unable to sign, that he or she has the necessary power of attorney to sign on behalf of the taxpayer and that the taxpayer is aware of the objection and agrees with the grounds thereof.
•be delivered to the Commissioner at the address specified in the assessment for this purpose, within the prescribed period as explained above.

If the Commissioner does not accept the taxpayer’s objection as a valid objection, complying with the requirements of Rule 4, he may inform the taxpayer by notice within 60 days.The taxpayer then has 10 days to submit an amended objection.If the taxpayer is able to demonstrate on good cause that the objection deemed to be invalid by the Commissioner should be accepted as valid, he can make application on notice to the Tax Court for an order declaring that the objection must be accepted as valid (rule 26).

The obligation to pay the assessment amount is not suspended by any objection or appeal against the assessment. The taxpayer may request the Commissioner to exercise their discretion to suspend the payment pending the finalisation of the objection or appeal.Should the taxpayer object to additional tax imposed, the onus rests on the taxpayer to persuade the Commissioner to reduce this additional charge. In terms of s 76(2) of the ITA, the Commissioner may remit the additional charges imposed under s 76(1) or any part thereof as they may deem fit, provided that they are satisfied that there is no intent to evade tax.This decision is subject to objection and appeal.

Section 75B (1) provides that the Commissioner "may” impose administrative penalties.Thus, the taxpayer can request that the Commissioner remit the administrative penalty (see s 75B (3) (d) of the ITA).The request for remittance should include a description of the circumstances which prevented the taxpayer from complying with the relevant obligations imposed under the relevant act and should include any supporting documents or information as may be required by the Commissioner in the prescribed form.In certain circumstances, the Commissioner must remit the administrative penalties (see s 11 of Government Gazette 31764 dated 31 December 2008).

The taxpayer should also consider requesting the waiver of any interest levied if applicable (see s 89 (2) of the ITA).By lodging an objection, the ball is thrown back in SARS’ court and SARS has to deal with the objection in any of the following ways:
• Alter the assessment in terms of section 81(4) of the Income Tax Act.
• Disallow the objection in terms of section 81(4) of the Income Tax Act.
• Reduce the assessment in accordance with section 79A of the Income Tax Act.
• Withdraw the assessment in accordance with section 79B of the Income Tax Act.

Furthermore SARS must notify the taxpayer of its decision in writing:
• In the case where SARS requested further information, within 60 days after receipt of that information.
• In any other case, within 90 days after the date of receipt of the taxpayer’s objection.

However, where SARS requires more time to deal with the objection due to exceptional circumstances, the complexity of the matter or the principle or the amount involved, SARS may extend the above 60 day period by another 60 days, or the above 90-day period by another 90 days.SARS must, before expiry of the initial 60 or 90- day periods, whichever is applicable, inform the taxpayer accordingly.

General advice and precautionary measures for taxpayers

Taxpayers are advised to keep detailed timelines in all dispute proceedings.This will enable them to challenge any non-compliance and deviation from the timeline described in the above mentioned process.Rule 26 makes provision for general relief and specific relief regarding non compliance.

General relief
• Where either party fails to comply with any requirement contained in the rules the Tax Court may, upon application on notice by the other party, order the defaulting party to comply with that requirement within such time as the Court deems appropriate.

Specific relief

•Where SARS, upon receipt of request for reasons, is of the view that adequate reasons have been provided (rule 3(2)), the taxpayer may apply to the Tax Court for an order remitting the matter for reconsideration by SARS with or without directions to provide such reasons as in the opinion of the Tax Court are adequate.
•Where SARS provides reasons (rule 3(3)) but the taxpayer is of the view that the reasons are not adequate, the taxpayer may apply to the Tax Court for an order remitting the matter for reconsideration by SARS with or without directions to provide such reasons as in the opinion of the Tax Court are adequate.
•Where SARS deems an objection invalid, the taxpayer may apply to the Tax Court for an order  declaring that any objection deemed to be invalid by SARS (in terms of rule 5(1)) shall be valid.
•Where the defaulting party fails to comply with an order made in terms of rule 26(1) or 26(5), the Tax Court may, upon application on notice by the other party:

(i)where the defaulting party is the taxpayer, make an order that the assessment against which the taxpayer has objected is confirmed, in which case the assessment shall be final and conclusive;
(ii)where the defaulting party is SARS, make an order that the objection is allowed and that SARS must alter the assessment in accordance with the objection; or
(iii)make such other order, including an order as to costs, as the Tax Court deems appropriate (see SARS’ Guide on Tax Dispute Resolution p.23).

Judge Spilg emphasised that the draconian powers conferred on the Commissioner under section 78 as read with sections 79, 81(1), 89quat and 91 should be exercised  with care by properly experienced and suitably qualified personnel and added an interesting and welcome extension to the body of law with the following:

It appears desirable that in order to provide adequate safeguards to the way in which section 91(1)(b) is implemented and possibly to continue satisfying the requirement of constitutional proportionality, the statement should indicate clearly;

(a)whether the assessment relied upon is an estimated assessment under the exercise of the powers conferred under section 78(1);
(b)if so, the suitability of the qualifications and experience of the person to conduct the estimated assessment;
(c)finally that the responsible person has satisfied himself or herself from the records maintained by SARS that no objection or appeal is pending or if lodged has been finally disposed of so that there is no impediment to filing the statement.
Source: By W.A Vogel (TaxTALK)



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