16/03/2022
SARS NEWS
Judge Cloete, in a Tax Court judgment handed down on February 25, 2022, considered delays by the South African Revenue Service (Sars) in providing a taxpayer the grounds for additional assessments amounting to R8.4 million raised against the taxpayer so egregious that the taxpayer was granted final relief.
In other words, the additional assessments were voided, and costs were awarded against Sars.
The taxpayer made a request for punitive costs to be awarded against Sars at the last minute, that is, costs on the attorney-client scale, but this request did not come in time to give Sars adequate time to deal with it in its papers.
Sars raised additional assessments in March 2020 in regard to the taxpayer’s 2016 to 2018 years of assessment.
The taxpayer requested Sars to provide reasons for the assessment, and Sars not only missed the prescribed 30-day deadline, it “unilaterally imposed” an extension to furnish its reasons, without requesting the taxpayer’s permission.
Needless to say, the taxpayer duly delivered its objection within the required period, but Sars missed its deadline for delivering its decision on the objection. The taxpayer issued a formal notice to Sars, which solicited a partial disallowance of the objection 10 days after the deadline.
The taxpayer appealed to the assessment in time, but Sars failed to deliver the required Section 31 notice providing the reasons for the assessment in time.
Further, Sars did not request condonation for the late notice, as is required by law, nor did it provide a reason for the delay.
On June 17, 2021, Ms Mukwevho from the Sars litigation unit blamed the delay on the “backlog as a result of Covid-19, lack of capacity and no filling of vacancies across Sars …”.
The taxpayer gave Sars a one-month extension, which Mukwevho “erroneously interpreted” to be a later date. The matter was then allocated to Mr Sehloho in the same unit.
The taxpayer threatened to bring an application for condonation of the assessment in terms of Rule 52(6). But Sars only served its Rule 31 statement on September 21, 2021, 36 days after the agreed extended timeline.
It is apparent that Sars was not able to write the Rule 31 notice itself, and had to brief external counsel to do so. The taxpayer was notified that Sars had “recently briefed counsel”, but this was untrue. Counsel was only “briefed and given instructions” on August 12, 2021.
Sars behaving badly
The judge found the following in regard to Sars’s behaviour:
• “Sars has displayed a persistent disregard for the time limits prescribed in the rules.”
• Sars made a number of misrepresentations to the taxpayer: that Mukwehvo had been allocated all three appeals when according to her she had been allocated only one; the date of the extension to which the taxpayer had agreed; the reason why the appeal was reallocated to Sehloho, and that counsel had “recently” been briefed.
• In regard to not accepting Sars’s request to ignore its delays prior to July 30, 2021, for the reason that “the most recent series of delays were simply the perpetuation of a pattern of disregard for the rules and what is required of administrative functionaries such as the Sars officials in the present matter”.
• Sars flouted the basic values and principles governing public administration enshrined in the Constitution: a high standard of professional ethics; efficient, economic and effective use of resources; impartiality, fairness, equitableness, and without bias; and accountability and transparency.
Prejudice to the taxpayer
It was crucial to the taxpayer’s business that it was reflected as “tax compliant” on Sars’s eFiling system.
Sars may not undertake recovery proceedings if a taxpayer requests a suspension of payment, unless Sars “holds a reasonable belief that there is a risk of dissipation of assets by the taxpayer”.
Even though Sars did not have such a concern, it issued the taxpayer with a final demand for payment on June 18, 2020.
The taxpayer pointed out Sars’s error, and Sars approved the payment suspension request on September 3, 2020. However, Sars insisted that the taxpayer pay the disputed, yet suspended debt, before it would change the status to compliant.
When the taxpayer threated Sars with a high court application, Sars changed the status to tax compliant on January 29, 2021.
On February 22, 2021, Sars revoked the suspension, and reflected the taxpayer as not compliant, ignoring the provisions of the Tax Administration Act (TAA).
Sars made further swaps of the taxpayer’s status between tax compliant and non-compliant.
The taxpayer gave examples of the severe prejudice it suffered:
• It forfeited an export registration with a regulatory body;
• Its credit facilities with two major banking institutions required proof of consistent tax compliance;
• To qualify for funding from the Department of Trade, Industry and Competition to attend international trade exhibitions, it had to be able to produce proof tax compliant status; and
• Some 50 employees would lose their jobs if the taxpayer could not continue with its business.
Sars admonished and taxpayer granted final relief
Judge Cloete found that:
• Sars did not challenge the taxpayer’s allegations “in any meaningful way”.
• “Whatever gloss Sars seeks to put on it” the facts demonstrate “that the delay was egregious”, there was no reasonable explanation for the delay, and the prejudice to the taxpayer was severe.
• Sars failed dismally to fulfil its obligations, both under the Constitution as well as the TAA.
• Sars displayed an “egregious lack of regard for the taxpayer’s constitutionally entrenched right to fair administrative action and, cut to its bare bones, has been reduced to relying on what it considers to be a novel issue of public importance to persuade this court to grant condonation”.
The taxpayer was granted final relief.
