Communication is key to reducing tax disputes
With a shrinking tax base, weak economic activity and a revenue shortfall, Sars was already under pressure last year to collect revenue, which is why collection this year is likely to be even more aggressive.
Last month, Sars Commissioner Edward Kieswetter told parliament that the 2019/20 tax year (ending before the Covid-19 pandemic had taken hold) had been battered by high public debt, underperforming state-owned entities, unreliable electricity supply, low business confidence and poor economic conditions.
Sars is projecting a revenue target shortfall of R304-billion for 2020/2021.
A recent report by the Tax Ombudsman highlighted Sars’s disregard of the rules governing objections and appeals. The ombudsman’s 2020 Systemic Investigation Report Tax, into the 2016/17 and 2017/18 tax years, found more than 500 000 raised assessments by Sars over those two years. It also found that Sars officials were arbitrarily deciding whether or not to allow objections to these raised assessments.
Sars raises an assessment when its version of your financials does not correspond with your version in your tax return. It's a document describing where Sars found errors on your return. If you don’t agree, you can raise an objection as the first stage of the appeal process. If you don’t object, Sars’s version is taken as fact.
The dispute process can leave taxpayers in limbo for years. Attorney Jean du Toit from Tax Consulting South Africa says: “Sars can drag out the dispute for as long as they want. Taxpayers waste a lot of time and resources fighting the disputes – so they just abandon their appeals.”
A tax specialist has now accused Sars of raising tax disputes unnecessarily, saying in most cases the service prejudices taxpayers.
Nico Theron, author of “Practical Guide to Handling Tax Disputes” (published by LexisNexis), says with taxpayers under immense pressure from the economic fallout from Covid, they are more likely to raise disputes to reduce their tax burden. And because of a lack of clarity of Sars’s rules and procedures, taxpayers must be informed about the remedies available to them.
Theron says the single biggest cause for concern in the context of tax disputes is that, over the period investigated by the ombudsman, 70% of appeals were conceded to, in full, by Sars.
Once an assessment has been raised, you may object, and only once your objection has been disallowed, can you appeal. “If one accepts this 70% statistic from the ombudsman as correct, this is nothing short of startling, and suggests that something is seriously amiss with the objection process,” Theron says.
Theron says these concessions by Sars, according to the ombudsman’s report, happen on average between 64 to 218 days after the submission of an appeal. “Taking into account the time it takes to go through the objection process (as the taxpayer must) before an appeal can even be submitted, there is plenty of time for a non-meritorious assessment to sow havoc for the taxpayer.”
He says it is not inconceivable that objections may be disallowed by Sars because they are vague, lacking evidence or based on unsound arguments.
Theron says many assessments should never be raised to begin with, but while there is little you can do to stop Sars from raising an assessment, you can stop it from forcing you into appeal when that assessment has no merits.
Gert van Heerden, the head of legal at the Tax Ombud,says Sars is raising assessments that should never have been raised. “The 70% of appeals that we are talking about are the appeals that were filed – those include where taxpayers withdrew appeals, or where the appeals were invalidated. That 70% is a conservative number: where we took out all the cancelled and withdrawn cases, the percentage of cases where they conceded was 92%.”
The majority of these are known as “onus cases” and relate purely to whether or not a taxpayer has the correct documents to substantiate the declaration on his or her return.
The assessment rate has declined owing to improved data validation systems at Sars, Van Heerden says. The fewer verifications that are done, the fewer cases will go to the dispute resolution arena.
“We expect there to be an improvement, facilitated by auto assessments, which will speed up the process. What is most likely is that people will complain about delayed refunds.”
He says the ombudsman’s office is concerned about the collection processes, with harsher and faster collection steps being taken. “We’ve already seen where Sars took money out of bank accounts improperly.
“Hands down the biggest problems we encountered were in terms of supporting documentation. The appeal has become a document-exchange exercise – that is where Sars and the taxpayer have a discussion, sitting with each other. Only at the appeal stage, does Sars say it is not happy with, for example, the logbook that’s been provided. Or taxpayers don’t provide information until that stage.”
The problem starts when the assessments are raised, because there’s a serious lack of communication between Sars and taxpayers, which snowballs, he says.
The Practical Guide to Handling Tax Disputes spells out options for taxpayers to fight their case. It is available from the LexisNexis Bookstore for R546.25.