Court or­ders tax­payer to re­spond to SARS

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Beric Croome

THE Eastern Cape Di­vi­sion of the High Court de­liv­ered judg­ment on May 5 in the case of Com­mis­sioner for the South African Rev­enue Ser­vices v J Brown, case no 561/2016, di­rect­ing the tax­payer to sub­mit a re­sponse to the life­style ques­tion­naire sent to him by the South African Rev­enue Ser­vice (SARS).

Ac­cord­ing to the judg­ment, Brown was not reg­is­tered for tax pur­poses and had never submitted tax re­turns to SARS. SARS made an ap­pli­ca­tion to the court re­quest­ing that the court direct the tax­payer to re­spond to the life­style ques­tion­naire and the tax­payer con­tended that he had shown just cause for his re­fusal to re­spond to the life­style ques­tion­naire.

SARS submitted the ques­tion­naire to the tax­payer on Oc­to­ber 19 2015, and the tax­payer was re­quired to sub­mit the com­pleted ques­tion­naire to SARS within 21 busi­ness days. The let­ter in­di­cated that the pe­riod of in­ves­ti­ga­tion cov­ered the 2011 to 2015 tax years and that SARS was re­view­ing the tax­payer’s file and that the in­for­ma­tion was re­quested in terms of sec­tion 46(1) of the Tax Ad­min­is­tra­tion Act.

The court in­di­cated that the ques­tion­naire com­prised 26 pages and that the first page draws the tax­payer’s at­ten­tion to the pro­vi­sions of sec­tion 72(1) of the act which pro­vides that a tax­payer may not refuse to com­plete and file a re­turn on the ba­sis that to do so may in­crim­i­nate the tax­payer.

The in­for­ma­tion re­quested by SARS re­lated to the tax­payer and his wife’s per­sonal par­tic­u­lars, per­sonal and pri­vate in­vest­ments and as­sets as well as prop­er­ties owned by him and his spouse with in­come re­ceived dur­ing the pe­riod under re­view and any ex­penses in­curred. The tax­payer’s at­tor­neys re­sponded to SARS’ let­ter on Novem­ber 5 2015 and re­minded SARS of its statu­tory obli­ga­tions to­wards tax­pay­ers and re­quested con­fir­ma­tion that SARS will keep the re­spon­dent in­formed of the progress and find­ings of any au­dits and that he will be given a rea­son­able op­por­tu­nity to re­spond to the find­ings. The tax­payer’s at­tor­neys also re­quired the fol­low­ing in­for­ma­tion be­fore the tax­payer would re­ply to SARS’ ques­tion­naire:

In terms of which sec­tions of which law the re­spon­dent was obliged to sub­mit the ma­te­rial;

If this is for ad­min­is­tra­tion of any tax law, the rel­e­vant sub­sec­tion of that def­i­ni­tion in sec­tion 3(2) of the act, must be quoted, sup­ported by the un­der­ly­ing facts and cir­cum­stances that make the en­quiry fore­see­ably rel­e­vant with the rea­son­able speci­ficity as re­quired by the act;

Ad­e­quate rea­sons for the ques­tion­naire, in­ves­ti­ga­tion and au­dit and why it is be­ing con­ducted, in­clud­ing the un­der­ly­ing risk anal­y­sis for the in­dus­try the tax­pay­ers is in, on which this au­dit is based; and

Copy of the SARS IDs and letters of au­thor­ity of the SARS as­ses­sors as well as the line man­ager in­volved in the mat­ter.

SARS was in­formed that the tax­payer would also sub­mit a for­mal re­quest for the above in­for­ma­tion under the Pro­mo­tion of Ac­cess to In­for­ma­tion Act.

SARS replied to the tax­payer’s let­ter re­mind­ing his at­tor­neys about the tax­payer’s statu­tory obli­ga­tion to pay the pre­scribed fee under the Pro­mo­tion of Ac­cess to In­for­ma­tion Act and stat­ing that the re­quest for in­for­ma­tion under the law would not be pro­cessed un­til the pre­scribed fee had been paid. Fur­ther cor­re­spon­dence passed be­tween SARS’ at­tor­neys and the tax­payer’s at­tor­neys with SARS re­mind­ing the tax­payer’s at­tor­neys the tax­payer had a duty to re­spond to SARS’ re­quest for in­for­ma­tion.

The tax­payer’s at­tor­neys in­di­cated that the re­quest to com­plete the ques­tion­naire con­sti­tuted ad­min­is­tra­tive ac­tion and was sub­ject to the prin­ci­ple of le­gal­ity and that the tax­payer had just cause not to re­spond to the re­quest be­cause the in­for­ma­tion re­quested by him had not been pro­vided to him and he was en­ti­tled to as­sume that the ex­er­cise of a power in terms of sec­tion 46 of the Tax Ad­min­is­tra­tion Act had not been prop­erly autho­rised. The tax­payer said he would only re­ply to SARS’ re­quest for com­ple­tion of the ques­tion­naire once the in­for­ma­tion re­quested in terms of the Pro­mo­tion of Ac­cess to In­for­ma­tion Act had been supplied by SARS.

SARS agreed to sup­ply copies of the SARS iden­ti­fi­ca­tion cards but re­fused ac­cess to the re­main­der of the records and in­for­ma­tion re­quired by the tax­payer. SARS de­clined the re­quest of that in­for­ma­tion on the ba­sis that dis­clo­sure thereof would jeop­ar­dise the ef­fec­tive­ness of SARS au­dit­ing pro­ce­dures and meth­ods used by SARS to iden­tify tax­pay­ers.

SARS ar­gued that the pro­vi­sions of sec­tion 46 are peremp­tory and that a tax­payer has no choice but to sub­mit the in­for­ma­tion where SARS calls for in­for­ma­tion under that sec­tion. The tax­payer con­tended that SARS was seek­ing to con­duct an un­law­ful fish­ing ex­hi­bi­tion and was not en­ti­tled to the in­for­ma­tion as the re­quest con­sti­tuted an in­fringe­ment of the tax­payer’s con­sti­tu­tional rights.

The court re­viewed the ar­gu­ments raised by SARS and the tax­payer, and came to the con­clu­sion that the is­su­ing of the ques­tion­naire was done in the course of the ad­min­is­tra­tion of a tax act and was sat­is­fied that all of the ju­ris­dic­tional facts con­tained in sec­tion 46 had been com­plied with.

The tax­payer con­tended that the re­quest for in­for­ma­tion con­sti­tuted ad­min­is­tra­tive ac­tion which was pro­tected by the right to just ad­min­is­tra­tive ac­tion.

SARS ar­gued that the re­quest for in­for­ma­tion under sec­tion 46 of the Tax Ad­min­is­tra­tion Act con­sti­tuted a pre­lim­i­nary in­ves­ti­ga­tion by SARS which may or may not re­sult in a more for­mal in­quiry into the tax­payer’s af­fairs.

The court de­cided that it is only once the in­for­ma­tion has been re­ceived by SARS and it has been es­tab­lished that a fur­ther in­quiry is re­quired that the prin­ci­ples of ad­min­is­tra­tive jus­tice must be ob­served. The court con­cluded that SARS had pro­vided sound rea­sons for its de­ci­sion to is­sue the life­style ques­tion­naire tak­ing ac­count that the tax­payer was not reg­is­tered and had failed to sub­mit tax re­turns. The court de­cided that the re­fusal by SARS to make in­for­ma­tion avail­able to the tax­payer under the Pro­mo­tion of Ac­cess to In­for­ma­tion Act was jus­ti­fied.

The court di­rected the tax­payer to com­ply with sec­tion 46 of the Tax Ad­min­is­tra­tion Act and sub­mit a proper re­sponse to the life­style ques­tion­naire within two weeks of grant­ing of the order in ques­tion. The court ruled that should the tax­payer fail to sub­mit the com­pleted ques­tion­naire, he would be held in con­tempt and will be com­mit­ted to im­pris­on­ment un­til such time as he com­plies with the court order. The tax­payer was also or­dered to pay SARS’ costs of the suit on the party and party scale.

Tax­pay­ers who de­cide not to sub­mit in­for­ma­tion re­quested to do so by SARS under sec­tion 46 need to be aware that such be­hav­iour will not be con­doned by the courts.

Tax­pay­ers have no choice but to sub­mit the in­for­ma­tion the Rev­enue Ser­vice calls for

Dr Beric Croome is a tax ex­ec­u­tive at ENSafrica.

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