Tax law will give SARS more power

File photo: Ziphozonke Lushaba

File photo: Ziphozonke Lushaba

Published Oct 16, 2015

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Johannesburg - Proposed changes to the Tax Administration Act threaten the rights of taxpayers, and lack several constitutional safeguards, lawyers and tax professionals warn.

The South African Revenue Service (SARS) on Thursday presented its responses to these concerns in Parliament, accepting some, but dismissing concerns over some contentious amendments to the law.

The concerns raised relate to the inadvertent waiving of legal privilege because of a myriad of new questions to determine if privilege exists, changes to the right of SARS to conduct interviews, and changes to the way in which the agency communicate with taxpayers.

Nina Keyser, head of tax dispute resolution and tax controversy management at law firm Webber Wentzel, earlier said it was understandable SARS wants to establish if taxpayers' claims about legal privilege actually exist.

"But the list of questions that are being proposed if a taxpayer claims privilege are so inclusive that you are effectively going to waive privilege when you answer the questions."

This concern was accepted, and the information required in terms of the amendments will be reduced to avoid any perception that SARS is seeking access to content of legal advice, or the risk that it might be inadvertently disclosed.

Keyser said, at the recent Tax Indaba in Sandton, that the most contentious proposed amendment deals with SARS' right to conduct interviews.

Concerns raised in this regard have not been accepted.

The act currently allows SARS to interview a taxpayer on his or her own tax affairs, and the sole purpose of the interview must be to clarify issues of concern in order to finalise an audit.

However, with the proposed change SARS will be allowed to interview any employee or person who holds an office. Where the purpose previously had been on issues pertaining to the finalisation of an audit it is now to obtain "relevant information".

"My problem is that SARS wants to be allowed to conduct an inquiry without the necessary constitutional safeguards," Ms Keyser said.

SARS said it would be impractical to conduct every interview as if it was an inquiry.

This amendments mean the permission of a judge to verify whether the inquiry is justified is no longer required, and it is no longer required that SARS sets out the reasons why it thinks the taxpayer is non-compliant.

Going fishing

Keyser said these safeguards have previously been included in the Tax Administration Act to prevent SARS from going on a "fishing expedition".

SARS said, if it was simply getting information to raise assessments that is inadmissible in court, then it should lose its case.

Betsie Strydom, member of the SA Institute of Tax Professionals' tax administration group and partner at Bowman Gilfillan, said, in terms of the Constitution, evidence obtained in a manner that violates any right in the Bill of Rights must be excluded, if the admission of the evidence leads to an unfair trial or is detrimental to the administration of justice.

"If the interviews are conducted in a manner that can be said to infringe the right to lawful, reasonable and procedurally fair administrative action, then the evidence must be excluded."

SARS said in response the ambit of tax authorities' information gathering powers is self-evidently wide. The use of information that is gathered under oath is common practice in most civil and criminal investigations.

Strydom has proposed there must be recordkeeping or minutes of the interviews to determine if the interview constituted "lawful, reasonable and procedurally fair administrative action".

The interviewee must have the right to legal representation, there must be express protection against self-incrimination and confirmation must be given that an interview will not constitute a waiver of legal professional privilege by a taxpayer who is, for example, a company.

"An employee or an office bearer would have to be properly authorised in order to waive privilege on behalf of the company, but if the interview takes place without legal representation and they have not been able to take legal advice, severe prejudice may result if privilege is waived," she concluded.

Understanding

Danie Kruger, SARS executive special support, said at the Tax Indaba that SARS had to be able to understand what has happened during the fact-finding process.

"The more you curtail this process the more expensive and onerous it becomes before you get an outcome. In our experience taxpayers want to have an outcome."

He said he had been present at a number of the interviews and found them to be "fair and reasonable". In some instances legal advisors were assisting the people being interviewed.

However, he added once there are professional people present, the process is curtailed. "I have found that without them [present], it speeds up the process."

He said, in many other jurisdictions, the fact-finding process was much less curtailed than in South Africa. In some jurisdictions taxpayers will not even have the ability to engage a lawyer in the process.

Keyser then interjected that South Africa still was a constitutional democracy.

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