SARS’ con­duct not above law

South African Rev­enue Ser­vice must fol­low con­sti­tu­tional obli­ga­tions when it per­forms its tax­a­tion du­ties

Business Day - Business Law and Tax Review - - FRONT PAGE - AN­DRIES MY­BURGH

VAR­I­OUS Con­sti­tu­tional Court chal­lenges in­volv­ing govern­ment in­sti­tu­tions and the Pres­i­dency and the per­ceived power strug­gle be­tween the com­mis­sioner for the South African Rev­enue Ser­vice (SARS) and the fi­nance min­is­ter have evoked plenty of pub­lic in­ter­est.

SARS has, mean­while, been un­der pres­sure to col­lect rev­enue in dif­fi­cult eco­nomic times that have seen cor­po­rate tax­pay­ers en­dure de­clin­ing rev­enues and in­creas­ing costs.

In this heady en­vi­ron­ment, it is use­ful to re­mind tax­pay­ers and their share­hold­ers of their con­sti­tu­tional rights and SARS’ con­sti­tu­tional obli­ga­tions when it per­forms its func­tions in ad­min­is­ter­ing var­i­ous tax­a­tion leg- is­la­tion. This topic is, how­ever, com­plex and so what fol­lows is a broad overview of th­ese is­sues.

Tax­pay­ers and their share­hold­ers are en­cour­aged to ob­tain spe­cialised le­gal ad­vice or as­sis­tance when con­fronted with po­ten­tial in­ves­ti­ga­tions or au­dits by SARS.

Sec­tion 1(c), read with sec­tion 2, of the Con­sti­tu­tion con­firms the supremacy of the Con­sti­tu­tion and the rule of law, and stip­u­lates that any law or con­duct in­con­sis­tent with the Con­sti­tu­tion is in­valid.

The Tax Ad­min­is­tra­tion Act is an ex­am­ple of leg­is­la­tion of gen­eral ap­pli­ca­tion that en­ti­tles SARS to en­croach on a tax­payer’s rights in cer­tain in­stances.

Sec­tion 40, read with sec­tion 46 of the act, is the em­pow­er­ing pro­vi­sion that en­ti­tles SARS to se­lect a tax­payer for in­ves­ti­ga­tion or au­dit pur­poses and to re­quest rel­e­vant ma­te­rial in terms of the pro­vi­sions of sec­tion 46 of the act.

How­ever, even though th­ese sec­tions al­low SARS to en­croach on a tax­payer’s right to pri­vacy, SARS must do so while re­spect­ing the tax­payer’s right to just ad­min­is­tra­tion in terms of sec­tion 33 of the Con­sti­tu­tion, read with the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act (PAJA) — to the ex­tent that SARS’ con­duct con­sti­tutes ad­min­is­tra­tive ac­tion as de­fined in sec­tion 1 of PAJA; al­ter­na­tively, in terms of the prin­ci­ple of le­gal­ity. This means that SARS’ con­duct must al­ways be law­ful, rea­son­able and pro­ce­du­rally fair and, where ap­pro­pri­ate, it must pro­vide ad­e­quate rea­sons.

If not, SARS’ con­duct would be con­trary to the Con­sti­tu­tion and sub­ject to re­view pro­ceed­ings in the high court in terms of ei­ther PAJA or the prin­ci­ple of le­gal­ity.

There­fore, for ex­am­ple, where a tax­payer re­ceives a re­quest for rel­e­vant ma­te­rial from SARS, the tax­payer may be en­ti­tled to re­quest ad­e­quate rea­sons from SARS spec­i­fy­ing the ba­sis on which, and the pur­poses for which, the par­tic­u­lar tax­payer has been se­lected for in­spec­tion, ver­i­fi­ca­tion or au­dit in terms of the pro­vi­sions of sec­tion 40 of the act.

Where SARS re­quests a tax­payer to pro­vide in­for­ma­tion, SARS must fol­low the process stip­u­lated in sec­tion 46. In de­cid­ing how to re­act to such a re­quest, the tax­payer must there­fore be mind­ful of this process.

Of par­tic­u­lar im­por­tance are the de­fined con­cepts “rel­e­vant ma­te­rial” and “ad­min­is­tra­tion of a tax act” used in sec­tion 46. The def­i­ni­tion of “rel­e­vant ma­te­rial” stip­u­lates that the in­for­ma­tion must be, in the opin­ion of SARS, “fore­see­ably rel­e­vant”.

“Fore­see­ably rel­e­vant”, is not de­fined in sec­tion 46; how­ever, guid­ance can be ob­tained from the OECD com­men­tary on the Ex­change of In­for­ma­tion, which in essence states that the def­i­ni­tion is broad but falls short of be­ing a “fish­ing ex­pe­di­tion”. There­fore, SARS is not en­ti­tled to go on a “fish­ing ex­pe­di­tion” when re­quest­ing the rel­e­vant ma­te­rial.

It is im­por­tant to un­der­stand that SARS may only re­quest the “rel­e­vant

Pic­ture: iSTOCK

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