Taxman not always right
CASE: REVENUE SERVICE REDUCED TAXPAYER’S ASSESSMENT BY R500 000 In 2020, the ombud found Sars had a 31% error rate where objections were incorrectly validated.
The Office of the Tax Ombud (OTO) came to the rescue in a matter between the South African Revenue Service (Sars) and a taxpayer, “saving” the taxpayer more than R500 000. The taxpayer approached the OTO with its complaint when the objection it raised against an assessment was invalidated, preventing the taxpayer from lodging an appeal against the decision.
The dispute arose from a 2023 assessment in which Sars disallowed a claim for the tax exemption on income earned abroad. The taxpayer objected and submitted supporting documentation for the claim. Sars requested additional documents, and the taxpayer obliged. The objection was invalidated without Sars having considered the supporting documents.
Sars did give reasons for rejecting the objection and indicated that the taxpayer could submit a new notice of objection. Following the invalidation, the taxpayer lodged a complaint with the OTO, which considered the matter and recommended that Sars withdraw the rejection and take a decision on the objection.
Sars adhered to the recommendation, allowed the dispute, and reduced the assessment by more than R500 000.
No error to correct
Sars can invalidate an objection if:
The taxpayer does not set out the grounds of the objection in detail;
The taxpayer does not use eFiling and does not specify the address where Sars can communicate with the taxpayer;
The form is not signed or if the representative is not authorised to represent the taxpayer; or
The objection is lodged more than 80 days after the date of the assessment.
Gert van Heerden, senior manager of legal services and systemic investigation at the OTO, says in this instance, there was no error in the objection, therefore, there was no defect to correct in a new objection.
Sars’ reasons for the invalidation of the objection indicate that it had, in fact, considered the grounds of the objection and, thereby, the merits of the dispute.
“It is thus evident that the reasons Sars gave for the invalidation of the objection fall outside the dispute resolution rules,” say Van Heerden. “In taking the incorrect step, Sars effectively stopped the taxpayer from lodging an appeal.”
In the appeal process, alternative dispute resolution can be followed where the taxpayer and Sars meet to find a faster, less expensive solution.
The OTO notes that Sars is not allowed to invalidate an objection because it disagrees with the taxpayer’s grounds of dispute. If Sars requests further supporting documentation – as it did – it must allow, disallow, or partially allow the objection based on the information submitted.
Invalidly invalidated
Nico Theron, managing partner of Unicus Tax Specialists, says objections are “invalidly invalidated” more often than he would like to see.
The 2020 Tax Ombud’s Systemic Investigations Report concluded that there was a 31% error rate where objections were incorrectly invalidated. There is no updated data to confirm whether the situation has improved or worsened, says Van Heerden.
Theron suspects that the term “invalidate” is incorrectly used when Sars means “disallow”. The taxpayer cannot appeal an invalidation of its objection.
If the objection is disallowed or partially allowed, the taxpayer can resubmit the objection to amend the non-compliance, or approach the OTO.
Theron notes that if Sars invalidates an objection, there is always something that can be corrected when submitting a new objection. The taxpayer can submit the correct form, or properly set out the grounds for the objection.