n Business Tax and Company Law Quarterly - Previewing the new Tax Administration Act : more muscle for SARS - taxpayers beware!

Volume 3, Issue 3
  • ISSN : 2219-1585


The new Tax Administration Act 28 of 2011 ('the TAA') is a far-reaching piece of legislation that will radically alter the tax administration landscape in South Africa. The TAA was promulgated on 4 July 2012, but is not yet in operation. It will come into force on a date to be proclaimed by the President in the . This is likely to happen in the near future.

The TAA consolidates in one statute the generic provisions administered by SARS and up to now separately contained in the various tax Acts that govern liability for tax, including the Income Tax Act 58 of 1962, the Value-Added Tax Act 89 of 1991, the Transfer Duty Act 40 of 1949, and the Estate Duty Act 45 of 1955, as well as a number of other tax statutes. Administrative provisions that are specific to particular tax Acts do not appear in the TAA and are retained in those Acts.
This article discusses the objectives of SARS in the enactment of the TAA and indicates the significant departures from current legislation as introduced in the new statute. The article presents an overview of the scope and purpose of the new provisions and an assessment of their potential impact on the powers and duties of SARS and the rights and obligations of affected taxpayers. This is done with special reference to SARS's explanation of and justification for the contents of the TAA as contained in the SARS Legislative Overview of the TAA and the SARS Short Guide to the TAA, both published on the SARS website in August 2012.
The article gives a concise summary of each of the twenty chapters and the schedule that comprise the TAA. In relation to SARS's extended powers of information gathering, inspection and search and seizure, the article discusses the concept of 'foreseeable relevance' appearing in the wide-ranging definition of 'relevant material', which SARS is entitled under Chapter 5 of the TAA to request from the taxpayer for the purposes of administration of the tax Act in relation to the taxpayer, or to be produced in person during a proposed interview by SARS.
SARS considers that as long as a reasonable possibility exists that the requested material will be relevant for assessing or collecting tax, or showing non-compliance with the requirements of a tax Act, this makes it 'foreseeably relevant'. The article suggests that this power has the potential for abuse, as it may encourage 'fishing expeditions' by SARS, where no clear reason for investigation exists.
There is also a critical analysis of the provisions of Chapter 5 relating to the protection of relevant material that is subject to legal professional privilege when SARS is involved in a search-and-seizure operation during the execution of a warrant. The article evaluates the stipulated procedure, which requires an attorney selected by SARS who serves on the panel of Tax Board chairpersons, to be present and to seal material for which a claim of privilege has been made, and later to determine whether or not the privilege applies. This procedure applies, however, only if SARS 'foresees the need to search and seize material that may be alleged to be subject to legal professional privilege'. If the attorney is not present and a person alleges the existence of privilege, SARS is required to seal the material in question and to hand it to an attorney on the panel for the purpose of making the determination as to privilege.
The article questions whether this is a fair and effective process for the protection of a fundamental right of the taxpayer, where privileged information exists. It points to the real possibility that breaches of the privilege may well occur if the SARS official(s) fails to foresee that a required document may be subject to a claim of privilege, or if the taxpayer is unaware of the right to claim privilege, or is not personally present when the privileged material is seized. It further questions whether attorneys who serve on the panel of chairpersons of the Tax Board are appropriate persons to perform the custodial and adjudicative functions assigned to them, and whether the determination as to privilege should not properly be made in the first place by a judge who has access to the relevant documentation, as is the case under the New Zealand TAA.
The article highlights novel provisions and innovations in the TAA, including the introduction of so-called 'understatement penalties' for taxpayer failure to render a return or an omission or misstatement in a return, or failure to pay the correct amount of tax, resulting in any prejudice to SARS. This provision replaces the open-ended discretion currently vested in SARS to impose up to 200% additional tax. There is now a table which specifies the understatement penalty applicable to various levels of behaviour by the taxpayer. The article points out that the relevant provisions in Chapter 16 relating to understatement penalties are not entirely clear and need review and revision to ensure greater clarity and certainty.
The article concludes that the TAA is destined to play a fundamental role in the application and enforcement of tax laws in South Africa. It reinforces the extensive powers enjoyed by SARS and should aid it in the execution of its administrative functions and duties, while providing greater clarity as to the limits of its powers and the rights and obligations of taxpayers. Whether the TAA, as contended by SARS, truly strikes a fair balance between such powers and duties on the one hand, and such rights and obligations on the other, will depend on the manner in which its provisions are applied by SARS officials and the extent to which they act with due regard to the distinction between compliant taxpayers and tax-evaders.

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