The Tax Administration Bill 11 of 2011 may face constitutional challenges should it be promulgated in its current form. Betsie Strydom, a tax partner at corporate law firm Bowman Gilfillan, says that the Bill gives SARS much wider powers, impacts on taxpayers’ rights and contains provisions that could affect the taxpayers’ right to hold a passport, to travel and to trade.
She recommends that taxpayers should consult their tax advisors as soon as they are audited or investigated by SARS, assessed, or requested to provide information to SARS because the Bill gives SARS such wide powers, taxpayers should consult.
It is imperative to ensure that the taxpayer’s rights are respected and that SARS complies with its duties and that the taxpayer is not pressurised (‘bullied?”) into providing information or making payments, that it does not have to give or make.
Strydom characterises as “of great concern” the following provisions in the Bill:
SARS can search for, and seize material which the taxpayer regards as subject to legal professional privilege. SARS can appoint an attorney from a panel to take the documents which are alleged to be privileged and to determine within 21 days whether privilege applies. However, there is no guarantee that an attorney, who is appointed by SARS, will be independent and there is no reason why the courts should not decide the question of privilege, instead of a SARS appointee.
SARS powers to gather information have been expanded.
SARS can in certain circumstances, conduct a search without a warrant.
SARS can require shareholders and trustees to provide security for the tax due by the company or trust concerned.
SARS can expedite the date of payment of tax.
SARS can allocate tax payments on a first in first out basis in respect of specific taxes or in respect of a group of taxes. It is not clear how this power will affect penalties and interest if the allocation is done in a manner not expected by the taxpayer.
SARS can issue “jeopardy assessments” before a tax return is actually due, if SARS views the payment of the tax as being “in jeopardy”. This is a new mechanism to the secure the early collection of tax, but is detrimental to a taxpayer who may not have all its documents available and/or returns completed, and who will now have to pay the tax earlier that would otherwise have been the case. The taxpayer can, however, ask the High Court to review a jeopardy assessment. How often the taxpayer will exercise this “right” has to be seen, as it is expensive to approach the High Court on review.
The Bill allows SARS to request the High Court to order a taxpayer to repatriate foreign assets in order to satisfy a tax debt.
The Bill gives extensive powers to SARS to collect foreign taxes from a person in South Africa and to transmit these foreign taxes to tax authorities in a foreign country.
SARS can also ask the Court to require the taxpayer to surrender his passport or to cease trading until the tax debt has been paid.
Taxpayers may find themselves liable for another person’s tax debt, if they are representative taxpayers and so-called “responsible third parties”.
“At the same time,” says Strydom, “the Bill does contain provisions which may cut out some of the ‘red tape’ involved with administering tax legislation, for example a single registration for multiple tax types such as income tax, employees’ tax and Value Added Tax”.
“The jury is out on how this Bill will pass constitutional scrutiny, but we expect that some of the provisions will have to be changed. I am not comfortable with the manner in which SARS currently exercises its powers.
“It is common for SARS to issue assessments that are ambitious and contentious and for SARS to rely on the ‘pay now, argue later’ rule, to collect payment of the assessed tax.
“The new proposals will make this situation much worse. For that reason, it is essential to know and enforce your rights as a taxpayer and to resist any attempt by SARS to exceed its powers.”