South African taxpayers beating SARS

The South African Revenue Service (SARS) has faced several legal setbacks recently, which could suggest that the agency often overreaches in its tax collection efforts.

This is according to Tax Consulting SA Partner and Head of Legal Darren Britz, who referred to a recent ruling from the South Gauteng High Court against the taxman.

“Anyone dealing with SARS, South African tax or who wants to know the temperature of the South African tax environment would find this well-written judgement useful,” he said.

In this case, the appellant is a discretionary trust that SARS issued an additional tax assessment for the 2012 tax year. 

The taxpayer objected to the assessment on two grounds:

• First, that the period of limitations for issuing an additional assessment had expired.
• Second, that the understatement penalty was excessive.

SARS disallowed both objections.

The taxpayer appealed to the Tax Court, which ruled against it because it had raised new grounds of objection in its appeal that were not included in its original objection. 

The taxpayer appealed this decision to the South Gauteng High Court, which found in favour of the taxpayer.

The High Court ruled that the Tax Court Rules did not preclude the new grounds of objection. In addition, the court held that SARS should not be allowed to levy taxes that are not payable in terms of the law.

This marks the most recent loss in a streak of legal blows SARS has faced this year.

One of the most high-profile cases this year was SARS’ legal battle against asset manager Coronation, which resulted in the Constitutional Court ruling against the taxman.

Another damning case for SARS was the decision in its case against Capitec Bank.

In this case, the Constitutional Court expressly stated, “This judgment concludes that SARS should not have disallowed the objection in full.” 

“SARS, as an organ of state subject to the Constitution, should not seek to exact tax which is not due and payable.”

Britz explained that it is unclear whether SARS Commissioner Edward Kieswetter is concerned about his losing streak against taxpayers in the court systems. 

“There has been an unprecedented loss ratio recently, and it is concerning that the Constitutional Court has had to step in, which was unthinkable a couple of years ago,” he said.

“As a large tax practice, we note that there is a definite hardening of SARS’ stance on matters.” 

“The most concerning ones are those where there is a delay on the part of SARS in resolving a matter, and a taxpayer cannot move forward without a SARS decision on a matter.”

Another concern Britz highlighted is SARS using the extensive legal powers granted to them to use classic delay tactics normally found in commercial litigation.

“There have been calls for SARS to be subject to independent oversight, but National Treasury has not actively moved forward hereon,” he said. 

“The Tax Ombud may report on SARS successes, but they do not have any legal mandate to hold SARS accountable.”

He said it would benefit South Africans to receive better communication from SARS on the hard work they do to combat tax evasion. 

While many South Africans pay their dues, there is a segment of society that wonders whether SARS works equally hard to collect tax from everyone.

“This requires a balance, with greater communication from SARS on what initiatives they are taking to prevent the levying of tax not due, which is now a confirmed problem – from High Court to Constitutional Court level,” Britz said.

“The Commissioner is but one man, and with an incredible responsibility, but a legacy of SARS attempting to collect more than its dues would be an unfair reflection.”

He added that SARS’ losing streak is seen by many tax specialists and academics as reflective of a healthy tax system.