WHEN SARS DOES NOT ADHERE TO PRESCRIBED DISPUTE RESOLUTION PROCEDURES

The Tax Administration Act No. 28 (2011) (“TAA”) prescribes the powers and duties of SARS and aims to ensure that tax is effectively and efficiently collected. Of late, however, it has been our experience that there has been an increase in the turnaround time within which SARS attends to corporate tax compliance matters.

THE LAW

Rules prescribing the procedures to be followed in lodging an objection and appeal against an assessment or a decision were promulgated in terms of section 103 of the TAA. Essentially, the tax dispute resolution rules provide guidance on the sequence of the tax dispute resolution process, as well as the number of days within which the relevant procedures should be attended to by the taxpayer and SARS.

These rules also allow for the extension of the time period within which the procedures should be attended to. Where a time period is extended by SARS, SARS is required to notify the taxpayer of such extension prior to the expiry of the initial period.

THE CHALLENGE

Of late, we have experienced that SARS increasingly does not comply with the tax dispute resolution procedures, and feedback is often provided after the expiration of the relevant prescribed period. The impact of Covid-19 regulations is cited as a cause, due to limited capacity and increased pressure on available SARS resources.

While reasonable delays with satisfactory explanations are understandable, the one-sided application of the tax dispute resolution rules may have dire consequences for corporate taxpayers. Where timeous feedback is not received from SARS, corporate taxpayers are often required to pay the tax debt due, its tax compliance status could be negatively impacted and a lot of time is invested in following up on the status of the dispute lodged by the taxpayer.

THE LIGHT AT THE END OF THE TUNNEL

In the recent case of F Taxpayer v Commissioner for the South African Revenue Service (IT 45842) [2022] ZATC 1 (25 February 2022), a taxpayer was aggrieved by additional assessments issued by SARS following an audit.

In a nutshell, the taxpayer adhered to the relevant prescribed periods contained in the tax dispute resolution rules, while SARS failed to do so. One of the consequences was that the tax status of the taxpayer was reflected as “non-compliant”. The taxpayer required a tax compliance status confirmation to procure specific export permits. Failure to procure these permits, could result in the cessation of the taxpayer’s operations.

The court held that there was no reasonable explanation for the delays by SARS and that the prejudice to the taxpayer was severe. The court then proceeded to allow the taxpayer’s appeals in respect of the additional assessments issued by SARS, and also ordered SARS to pay the taxpayer’s legal costs.

THE TAKE-AWAY

While it remains important that corporate taxpayers adhere to the prescribed dispute resolution procedures, the above judgement emphasises that corporate tax compliance is not a one-sided endeavour and that SARS too should adhere to these procedures.

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