SARS’ conduct not above law
South African Revenue Service must follow constitutional obligations when it performs its taxation duties
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