Receiver gets wide-ranging powers
Proposed bill entitles SARS to a detailed search of a business premises without having to obtain a warrant
THE third draft of the long awaited Tax Administration Bill was recently published for a final comment. The Tax Administration Bill is an initiative to incorporate certain generic administrative provisions that are currently duplicated in the different tax statutes into one piece of legislation.
Since the bill is now nearing the final stages of the legislative process, every taxpayer requires a basic knowledge of its implications.
The bill provides for a registration system whereby taxpayers will register for all tax types by means of a single registration form. For instance, an enterprise will no longer have to register separately for income tax and value-added tax (VAT). The South African Revenue Services (SARS) may, however, allocate various reference numbers to one taxpayer to differentiate between various tax matters. Should the taxpayer correspond with SARS without mentioning the allocated reference number, SARS may disregard such correspondence.
In most instances registration must take place within 21 business days from becoming liable or entitled to register under a tax act. “Business days” now also excludes days from December 16 to January 15 each year. Do not be surprised if SARS asks you to wink at them while you register, as “biometric information” may now be used to authenticate the identity of an individual. This includes any biological data, such as retina, voice, facial or fingerprint recognition. SARS is, however, obliged to put measures in place to secure the confidentiality and protection of such personal data.
In line with the single registration system, a single taxpayer accounting system will also be introduced. Taxpayers will have one tax account with a rolling balance of all outstanding taxes. Payment allocation rules may be applied in respect of a specific tax type and SARS may recover taxes by applying the first-in-first-out rule. This could give rise to some issues where the amounts of certain taxes are in dispute and others are not.
SARS officials are now categorised into three tiers and decision-making powers and functions are assigned accordingly. The three levels are:
(i) The Commissioner personally; (ii) “Senior SARS officials”; (iii) Lastly, “ordinary SARS officials”. The powers that may be exercised by senior SARS officials are usually more serious and have more effect than the powers exercised by ordinary officials. All SARS officials must carry SARS identification cards whenever carrying out powers under the tax laws.
Certain of SARS’ powers are substantially extended by the bill, for example their information-gathering powers. If a person becomes “objectively identifiable” by SARS, relevant material relating to that person may be procured from that person or from third parties.
SARS may without prior notice arrive at and inspect premises to determine the identity of the person occupying the premises, whether that person is conducting a trade or an enterprise, or whether the person is registered for tax and keeps the required records.
A detailed search of a business premises may be carried out by SARS without a search warrant if a senior official has reasonable grounds to believe that there may be an imminent removal or destruction of relevant material likely to be found on the premises and that the delay in obtaining a warrant from a court would defeat the object of the search and seizure. Such strong powers raise a number of constitutional issues.
Taxpayers may also be invited to informal examinations at a SARS office for purposes of being interviewed regarding their own or another person’s tax affairs. In the event of such an invitations, taxpayers should obtain legal advice to ensure that they are informed of their rights at the meeting.
In line with international practice, SARS may now also issue “jeopardy assessments” which entail that taxpayers may be assessed for taxes which will only become due in future.
According to SARS, the bill seeks to achieve a balance between the powers of SARS on the one hand and the rights of taxpayers on the other.
In terms of the so-called “pay now, argue later” principle, taxpayers are obliged to pay outstanding taxes immediately, despite a pending objection or appeal. This obligation may now be suspended at the discretion of a senior official. The officer must consider certain criteria, such as the compliance history of the taxpayer, the amount of tax involved and the ability of the taxpayer to provide security for the payment.
Should it be decided that the payment may not be suspended, SARS may not recover the tax for another 10 business days. In this way the taxpayer is given a reasonable opportunity to consider further rights.
Once a tax is recoverable the bill reduces the current 30-year prescription period for collection of the debt to 15 years.
Subject to certain exceptions, a taxpayer must be kept well informed during a SARS audit.
The taxpayer is entitled to frequent progress reports of the audit, including a written notification of the final outcome. The taxpayer must also be given an opportunity to respond to the audit findings. The legislation also separates audits from criminal investigations to ensure that accused taxpayers can enforce all their constitutional rights.
The bill creates the office of the tax ombud, which provides for a significant change to the dispute resolution system when it comes to service, procedural or administrative difficulties.
The mandate of the tax ombud will be to review and mediate complaints, to make recommendations to SARS and to report directly to the Finance Minister.
The tax ombud is not intended to usurp the role of SARS’s existing internal mechanisms, the public protector or the courts. It is an additional low-cost avenue to resolve administrative difficulties, located between SARS’s internal mechanisms and the existing external mechanisms.
While the extension of SARS’ powers are aimed at targeting tax evaders more effectively, the Tax Administration Bill also seeks to ensure a better service, efficiency and simplicity to honest and compliant taxpayers. The bill provides for a permanent voluntary disclosure programme applicable across most tax types (excluding customs and excise), unless the taxpayer involved is subject to a pending or existing audit or investigation by SARS.
However, the permanent voluntary disclosure programme under the bill is not as accommodating as the current temporary voluntary disclosure programme available to taxpayers until October 31.
Even though the bill may strive to achieve a balance between the powers of SARS and the rights of taxpayers, the supplemented powers of SARS should not be underestimated.
Taxpayers should now, more than ever, ensure that their tax affairs are in order and must develop a full understanding of the extent of their rights so that these rights can be exercised when necessary.