SOUTH AFRICA: SARS’ EXPANDED POWERS OF ASSESSMENT – TAXPAYERS BEWARE
This is the second in a series of three newsflashes examining amendments to tax administration laws that were promulgated late last month. The amendments are indicative of SARS' need to focus on maximising collections and preserving liquidity, which are likely to be among the themes addressed at next week’s National Budget Speech.
The amendments to the Tax Administration Act 28 of 2011 (TAA) proposed in the 2020 Taxation Laws Amendment Act (TALAA) were promulgated on 20 January 2021. Taxpayers should take careful note of SARS’ new powers to issue estimated assessments in the context of requests for relevant material.
Section 95 previously allowed SARS to issue an estimated assessment if a taxpayer failed to submit a return, or to provide information to SARS. The amendment authorises SARS to also issue an estimated assessment where the taxpayer ‘does not submit a response to a request for relevant material under section 46, after delivery of more than one request for such material’.
In addition, section 95(5) of the TAA now provides that taxpayers may not object to, or appeal, an estimated assessment until the outstanding tax return, or relevant material is submitted to SARS. SARS is entitled to extend the period for submission of the outstanding information, until the end of the three- or five-year limitation period contemplated in section 99(1), at which point the estimated assessment will become final.
Although SARS has always had the means to enforce its information-gathering powers, the limitation of taxpayers’ rights to dispute an estimated assessment poses a new and significant risk. An estimated assessment also creates an immediate liability for tax in terms of the ‘pay-now-argue-later’ principle.
Although the amendments to section 95 do not prevent taxpayers from applying to SARS for the suspension of the obligation to pay the assessed amount (in terms of section 164 of the TAA), the granting of a suspension is entirely within SARS’ discretion.
Critically, if the taxpayer does not initiate a dispute within the 30 days (or extended period) provided for by the TAA, any suspension granted by SARS is automatically revoked with immediate effect. A senior SARS official is also entitled to deny or revoke a suspension of payment if satisfied that the taxpayer lacks a genuine intention to dispute the tax debt owed to SARS, which may well be the case for taxpayers who still owe outstanding returns or information.
The intention behind the amendment to section 95 is to enable SARS to effectively compel unscrupulous taxpayers who deliberately ignore their obligations, to respond. However, the overzealous application of these new powers could also have unintended, negative effects.
For example, there is no definition of ‘adequate’ information. In practice, requests for relevant material are sometimes overly broad and impractical to implement, and SARS and taxpayers frequently disagree about the precise scope covered by an information request. In circumstances where taxpayers cannot locate all of the requested information, or where there is a dispute regarding the disclosure of privileged advice, SARS’ ability to issue estimated assessments could take on an unintended, coercive slant.
It is therefore more important than ever for taxpayers to ensure that their contact details are correct and up to date, and to involve tax advisors from the outset when engaging with SARS in the context of a request for relevant material.
Although a taxpayer’s ability to object to an estimated assessment may be compromised by the new section 95(5), the decision to issue an estimated assessment still constitutes administrative action, which will be subject to review if the decision-making process does not comply with the Promotion of Administrative Justice Act.