Warning to South Africans taking SARS to court

Experts warn that taxpayers taking SARS to court can fail, even if they have a strong case, if they skip proper procedures and forums.

André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA, explained that South Africans should not underestimate the procedural rigour required to challenge SARS.

In the recent case of Kerbyn Cape v SARS, the High Court dismissed the taxpayer’s application on procedural grounds alone and ordered it to pay SARS’ legal costs.

“This case highlights a simple but costly truth,” Daniels said. “Even a strong tax position can be lost if a taxpayer follows the incorrect procedure when disputing an assessment or decision taken by SARS.”

In this case, the taxpayer approached the High Court directly. They wanted to correct an assessment concerning the classification of a sale of immovable property.

SARS raised two points: lack of jurisdiction and the taxpayer’s failure to exhaust internal remedies under the Tax Administration Act (TAA). “The High Court agreed with SARS on both counts,” Daniels said.

“First, the court emphasised that the appropriate forum for such a dispute is the Tax Court, not the High Court.”

Section 105 of the TAA requires taxpayers to apply to SARS for permission to approach the High Court, a step the taxpayer failed to take.

The court also noted that the Supreme Court of Appeal reinforced that section 105 is intended to ensure that internal remedies are exhausted before approaching a Tax Board, Tax Court or higher court. These remedies include the objection and appeal process.

Second, the court found that the taxpayer had not exhausted available internal remedies. Specifically, it did not object to SARS’ decision or follow the prescribed dispute resolution steps.

The court noted that the taxpayer had simply bypassed the process, which proved fatal to his case, Daniels explained.

“Plainly, the procedure is clearly set out that a taxpayer has to exhaust internal remedies, then approach the Tax Court for appeal,” said Judge Babalwa Mantame.

“A taxpayer is not entitled to bring review proceedings at its peril without exhausting all these procedures and/or without requesting this Court to ‘direct otherwise’.”

One mistake can cost millions

Daniels said the outcome of the case was swift and unforgiving. SARS’ points succeeded, the review application was dismissed, and the taxpayer was ordered to pay SARS’ costs.

“The court specifically noted that the taxpayer appeared to be the author of its own misfortune,” he said.

“There was no consideration of whether SARS had erred substantively. The taxpayer’s legal challenge collapsed entirely on procedural grounds.”

“This is not just a technical lesson. It is a financial one. Cost orders in tax litigation can be substantial, and when a taxpayer jumps the gun or is led down the wrong path, the consequences can be both painful and avoidable.”

According to Daniels, this judgment highlights why taxpayers should seek qualified legal advice before initiating any dispute with SARS.

“The tax litigation landscape is increasingly complex, and SARS is quick to identify and rely on procedural missteps, often as a first line of defence,” he said.

“Given SARS’ high success rate in litigation, procedural compliance is just as critical as the substantive tax position.”

This case demonstrates that even a compelling grievance against SARS will fail if brought in the wrong forum or pursued through the incorrect procedure.

“In tax disputes, timing, process, and forum are everything,” Daniels added. “One misstep can cost millions – and leave a taxpayer footing the bill for SARS’ legal team.”

When considering a legal dispute against SARS, experts recommend that taxpayers seek professional legal advice first.