Proposed statutory amendments to widen the information gathering powers of the South African Revenue Service (Sars) could have significant time and cost implications for taxpayers.
There are also concerns that it may infringe on taxpayers’ rights in specific cases.
The Tax Administration Act (TAA) that was introduced on October 1 2012 allows Sars to require a taxpayer or third party (for example a bank, medical aid or pension fund) to submit “relevant material” for administration purposes within a reasonable period.
In practice this means that Sars may request supporting documents during a tax audit or when verifying information supplied in a tax return, Wessel Smit, member of the South African Institute of Chartered Accountant’s (Saica) National Tax Committee, explains. This could include tax certificates, proof of deductions, retirement annuity certificates and medical certificates amongst others.
Proposed amendments to the TAA aim to widen this request for relevant material to include any information or document that “in the opinion of Sars is foreseeably relevant”.
Smit says it is possible that the introduction of this amendment could make it much more difficult for taxpayers to deny requests for information – especially as it pertains to historical information or years of assessment other than the current tax year.
In practice, taxpayers will likely have to spend more time compiling the material and provide more information than they had to in the past, Smit says.
Taxpayers have allegedly been reluctant to provide certain information to Sars on the grounds that the material requested is not relevant to the matter at hand. Sars contends that the attitude of South African taxpayers is different to that experienced internationally where taxpayers are much more transparent in their dealings with the tax authorities. It argues that it therefore needs wider powers to carry out its duties of determining the taxable income of taxpayers, which sometimes requires extensive investigation.
Dr Beric Croome, chairperson of Saica’s Tax Administration Subcommittee, says while a request for supporting documentation to resolve discrepancies in a tax return filed by an individual, cannot be regarded as unreasonable, tax audits conducted in the large corporate environment are often a much more complex area.
In some instances Sars may conduct an audit on a company and could request comprehensive information including copies of board minutes, information about executive committee meetings and remuneration committee minutes which may sometimes go back as far as 15 years.
Croome says where information might assist Sars in assessing the tax liability of a taxpayer, Sars is entitled to the material, but where commercial information regarding processes or commercial transactions is sensitive, this information should be protected.
“I think that is going beyond what Sars is entitled to and that is often I think where some of the tension comes in as to whether that is relevant for purposes of tax,” Croome says.
Another proposed amendment would require taxpayers to submit material in the format Sars considers appropriate.
Smit says the practical implications of this proposal are of concern to taxpayers and tax practitioners.
There is uncertainty around whether the proposal is limited to the information that is available. If information is only available in hard copy format, but Sars expects it to be supplied electronically this could result in considerable additional work and expense for taxpayers. This is also true where information in a specific accounting system has to be revised to adhere to Sars’ specifications, he says.
Taxpayers who believe that Sars is acting unreasonably have the right to challenge its actions in terms of the Promotion of Administrative Justice Act (Paja), but they should be aware that this is likely to be a costly and time consuming exercise.