Tax­man’s search and seizure ap­proach at is­sue

It would be more rea­son­able to have the need for such ac­tion cer­ti­fied by a third party

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - ROBERT GAD & SILKE BOVIJN

THE power of search and seizure is one of the pow­ers granted to the Com­mis­sioner of the South African Rev­enue Ser­vice (SARS) in or­der to en­force, among other things, the In­come Tax Act, 1962, and the Value-Added Tax Act, 1991, ef­fec­tively.

The search and seizure pro­vi­sions are con­tained in sec­tion 74D of the In­come Tax Act and an al­most ex­act replica of this sec­tion is found in sec­tion 57D of the VAT Act. These pro­vi­sions au­tho­rise SARS to en­ter and search any premises and any per­son present on the premises for any in­for­ma­tion, doc­u­ments or things that may af­ford ev­i­dence as to the non-com­pli­ance by any tax­payer with his obli­ga­tions and to seize any such in­for­ma­tion, doc­u­ments or things with­out prior no­tice and at any time.

The SARS is, how­ever, not at lib­erty to con­duct such a search and seizure op­er­a­tion. The ba­sic prin­ci­ple that forms the ba­sis of this power of the Com­mis­sioner un­der both the In­come Tax Act and the VAT Act is that a war­rant must first be ob­tained from a judge.

The pre­vi­ous search and seizure pro­vi­sions, that is the pre­vi­ous sec­tion 74(3) of the In­come Tax Act and sec­tion 57(1) of the VAT Act, did not make pro­vi­sion for a war­rant. SARS was al­lowed to au­tho­rise and con­duct a search and seizure op­er­a­tion it­self.

It seems, how­ever, that these sec­tions were not sus­tain­able in our new con­sti­tu­tional era and the leg­is­la­ture re­pealed those pro­vi­sions and in­tro­duced the new sec­tion 74D into the In­come Tax Act and sec­tion 57D into the VAT Act in 1996.

The search and seizure pro­vi­sions of these two acts were re­con­sid­ered re­cently and new pro­vi­sions are in­tro­duced by the Tax Ad­min­is­tra­tion Bill. The draft­ing of the Tax Ad­min­is­tra­tion Bill was an­nounced in the 2005 bud­get re­view as a pro­ject “to in­cor­po­rate into one piece of leg­is­la­tion cer­tain generic ad­min­is­tra­tive pro­vi­sions, which are cur­rently du­pli­cated in con­tro­ver­sial “with­out a war­rant” search and seizure pro­vi­sions.

A se­nior SARS of­fi­cial is au­tho­rised un­der the bill to con­duct a search and seizure op­er­a­tion in cer­tain cir­cum­stances with­out a war­rant. Such a search and seizure may be con­ducted if the per­son con­sents in writ­ing or if the se­nior SARS of­fi­cial on rea­son­able grounds is sat­is­fied that:

There may be an im­mi­nent re­moval or de­struc­tion of rel­e­vant ma­te­rial likely to be found on the premises;

If SARS ap­plies for a search war­rant, it will be is­sued; and

The de­lay in ob­tain­ing a war­rant would de­feat the ob­ject of the search and seizure.

Even though this may seem a rad­i­cal new pro­vi­sion, the cir­cum­stances un­der which such an op­er­a­tion may be car­ried out are strict. In the draft ex­plana­tory mem­o­ran­dum on the Draft Tax Ad­min­is­tra­tion Bill (2009), the SARS says the fol­low­ing on the search and seizure pro­vi­sions with­out a war­rant:

“This power should as­sist in ad­dress­ing the prob­lem of tax evaders who, upon ap­proach by SARS, waste no time to de­stroy all records and ev­i­dence of their fraud­u­lent ac­tiv­i­ties and de­tails of in­come de­rived.”

It could be ar­gued that the pro­vi­sions are in breach of the con­sti­tu­tional right to pri­vacy, but it must be re­mem­bered that con­sti­tu­tional rights can also be lim­ited to the ex­tent that the lim­i­ta­tion is rea­son­able and jus­ti­fi­able in an open and demo­cratic so­ci­ety based on hu­man dig­nity, equal­ity and free­dom. Our courts have pre­vi­ously found that “in­stant” war­rant­less pow­ers are un­con­sti­tu­tional. This is when a power to con­duct a search and seizure with­out a war­rant is granted with­out the op­tion of a war­rant.

How­ever, where an act pro­vides for the gen­eral re­quire­ment of a war­rant to con­duct a search and seizure op­er­a­tion and only al­lows for a war­rant­less op­er­a­tion in cer­tain ex­cep­tional cir­cum­stances, this has been found to be con­sti­tu­tional by our courts.

It seems that tax­pay­ers in good stand­ing with the SARS should not fear this new power of the Com­mis­sioner to carry out a search and seizure with­out a war­rant. One of the re­quire­ments in the Tax Ad­min­is­tra­tion Bill that must be met be­fore such an op­er­a­tion may be con­ducted is that there must be rea­son­able grounds that if SARS ap­plies for a search war­rant, a search war­rant will be is­sued. A war­rant may only be is­sued by a judge if sat­is­fied that there are rea­son­able grounds to be­lieve that a per­son failed to com­ply with an obli­ga­tion im­posed un­der a tax act, or com­mit­ted a tax of­fence. The dif­fi­culty that arises is that the SARS is re­quired to de­ter­mine ob­jec­tively the rea­son­able­ness of its own view of the mat­ter. Dif­fi­cul­ties can al­ways arise when a party in­volved in a dis­pute and not suf­fi­ciently de­tached from that mat­ter has to eval­u­ate the rea­son­able­ness of its own point of view. One would like to see a more ob­jec­tive over­sight from a third party to de­ter­mine whether grounds ex­ist for this in­va­sion of pri­vacy.

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