- A notification of audit and an opportunity to reply.
- To keep the taxpayer informed during the audit process and the potential adjustments.
- Once an audit has been conducted, they are obliged to provide the taxpayer with an ‘audit findings’ letter and provide adequate explanatory reasons why they wish to make a potential adjustment.
- They have to give the taxpayer 30 days to respond prior to issuing the new additional assessment.
JOHANNESBURG - If you are targeted for an SA Revenue Service (Sars) audit, both you and Sars need to be compliant. Your right to Administrative Justice is a fundamental right of every taxpayer, but it is a complicated process to police. And it is costly.
Sars announced in June that the tax season has been shortened by three weeks and will run from July 1 to October 31. Sars have also announced a campaign of stricter verification and collection of taxes. Not only from previous ‘tax dodgers,’ but an increased vigilance amongst all taxpayers. This will mean more queries, proof of documents and expenses and Sars going through tax returns with a fine toothcomb. It also increases the possibility of a tax audit by Sars .
The word ‘tax audit’ strikes fear into most people – even if you have nothing to hide. If you have ever been targeted for a Sars audit, you will know the feeling. Whether it is an internal desk audit, or an in-depth audit in more high level risk cases, it’s stressful, time-consuming and can be very expensive. Your accountant (or tax attorney if necessary) will need to collate information and follow the strict procedural rules. A task which requires time, experience and special expertise.
An audit is also an unwelcome surprise in terms of budget. Defending a tax audit is expensive. The last thing you need is the combined stress of being audited and an unexpected expense.
If you are thinking ‘that won’t happen to me,’ you may be right. However, by definition the term ‘Risk’ is a ‘probability of liability,’ which can be mitigated by pre-emptive action.’ So, a Sars tax audit might well happen to you, which is why there are tax risk insurance products available on the market today, that mitigate this risk and give you peace of mind.
The good news is that as a taxpayer you have rights in terms of the Constitution, the Tax Administration Act (TAA) and surrounding applicable legislation. The ‘not’ so good news is that most taxpayers are unaware of these rights and how to access them. It often happens that SARS fails to follow proper procedures when conducting an audit and in some cases they neglect to respect the rights of a taxpayer as set out in the Constitution. A recent example is the case of IT13726 where an assessment that followed from an audit was found to be constitutionally invalid for failure to comply with applicable tax laws.
The different legal and internal remedies available to you as a taxpayer are set out in the different tax laws, the Constitution and even the common law. It’s unrealistic to expect you to know these, never mind police them. If you’re still not convinced, cast your memory back to the Budget Speech this year.
The tax revenue shortfall in 2018 was an eye-watering R48.2-billion. Fingers are being pointed at Sars – it is after all a reflection of poor administration, productivity and expertise. Sars is not without its internal politics either and they are under constant pressure by the Treasury to meet targets. This means a crack-down on taxpayers who have failed to submit their returns, and a massive increase in verifications and audits on taxpayers, even those who are honest and who pay their taxes diligently.
The inevitable result of a Sars tax audit in most cases is that an additional assessment is issued, and an additional tax liability is created for which you are legally responsible. The ‘new liability’ often includes penalties, sometimes as high as 200 percent of the new tax debt.
Sars is required to follow a due process when they engage a taxpayer for an audit which includes:
Failure to follow these steps will be regarded as a contravention of the principles codified in Section 33 of the Constitution, which includes, ‘the right to fair, reasonable and lawful conduct’ by Sars’ officials.
‘From the very outset of an audit, it is extremely important that you are aware of your rights and to let Sars know that! You are protected by The Tax Administration Act (TAA), The Promotion of Administrative Justice Act (PAJA) and the Constitution. Which means you need proper (and complicated) scrutiny measures during the audit process.’
Remember, Sars may not just go on a ‘fishing expedition’ hoping to catch the big one. Their requests for documentation must be specific to the particular query.
"To ensure your rights as a taxpayer remain protected, it is imperative that you have an expert holding your hand during the tricky audit process”, says Melanie le Roux, MD-GreatSoft Financial Services.
The premiums for tax risk insurance are less than a gym contract and as good for your stress levels as a work out, if you are singled out for an audit. There is no monetary value for peace of mind.
Dr Daniel Erasmus has more than 28 years' experience including all aspects of income tax planning, Revenue Services administration proceedings and tax litigation. Daniel holds a PhD in tax and constitutional law, is an international tax adjunct professor and author of numerous tax textbooks. Dr Erasmus focuses on tax controversy with a general emphasis on the complex domestic and international issues and a particular emphasis on transfer pricing issues.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT