Fewer days in court for SARS and taxpayers

The South African Revenue Service has the responsibility to recover taxes in terms of the taxing acts alone, with no quarter asked or given.

Sometimes there are instances in which this can lead to absurd or extremely onerous results on the taxpayer, and remedy through the courts is often not a prospect.

A welcome aspect of the Taxation Administration Act of 2011 is that it recognises that the rigidity of the taxing acts must sometimes be tempered. This can lead to errant taxpayers walking away with their shirts still on when the taxing acts specify otherwise.

The tempering provisions of the Taxation Administration Act can be broadly summarised in three categories:

  • The voluntary disclosure programme allows the errant taxpayer to come clean before an error is uncovered by SARS, thereby avoiding additional tax charges and criminal prosecution;
  • Alternative dispute resolution proceedings allow SARS to negotiate the settlement of an existing tax dispute without resorting to litigation; and
  • Compromise provisions allow SARS to defer or permanently write off an unrecoverable tax debt.

Taxpayers must accept that these provisions cannot apply on the basis of a simple unmotivated plea for leniency. The act has very strict tests that must be passed before SARS can come to the rescue of a taxpayer. If the taxpayer fails these, SARS is not authoris ed to cut a deal, no matter the outcome.

Furthermore, deals cannot be made with any old SARS official. Applications have to proceed using the correct forms and going through the right channels.

In my experience in working with the new provisions, more time is spent identifying and motivating the exact provisions and detailing why SARS should come to the party than actually coming to the final deal. This is a good thing because the process distinguishes between a worthy cause and a taxpayer who is simply taking a chance.

Litigation of a tax dispute through the courts should be the absolute last resort. Even SARS does not litigate unless it is sure of success and often prefers to settle rather than litigate.

Taxpayers with a dispute should pursue any prospect of achieving a settlement through the act’ s provisions and balance the outcome with the uncertainty and cost of litigation.

Originally published in the Sunday Times: Money & Careers Tax Talk column.

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