COMMUNICATION IS KEY TO REDUCING TAX DISPUTES
1. “With a shrinking tax base, weak economic activity and a revenue shortfall, Sars was already under pressure last year to collect revenue, which is why collection this year is likely to be even more aggressive”, is how Georgina Crouth starts her article under this heading in PERSONAL FINANCE/TAX of 23 November 2020. The learned lady deals with one of the most important areas of the taxpayer /SARS relationship and it is important that we all take serious note of what she has to say on this subject. We borrow freely from the article because this subject concerns us all.
2. Last month SARS Commissioner Edward Kieswetter told parliament that the 2019/20 tax year , which ended before the Covid-19 pandemic had taken hold, had been battered by high public debt, underperforming state-owned entities, unreliable electricity supply, low business confidence and poor economic conditions.
3. SARS is projecting a revenue target shortfall for 2020/21 of R304 –billion, a hair-raising nightmare for the battered South African taxpayer to absorb in the aftermath of the said pandemic in the near future.
4. If that is not enough, a recent report by the Tax Ombudsman highlighted a disregard of the rules governing objections and appeals by the very same SARS. The Ombudsman’s 2020 “ Systemic Investigation Report Tax” , into the 2016/17 and 2017/18 tax years, found that SARS had raised more than 500 000 assessments over those two years. What is of concern is that SARS officials were arbitrarely deciding whether or not to allow objections to these raised assessments.
5. Our readers will be aware of the age-old tit-for-tat between SARS and taxpayers where SARS itself raises an assessment, called an additional assessment, where its version of your financials does not correspond with your version in your tax return. If you do not agree with SARS’ own assessment you can raise an objection. This is the first stage of the appeal process. Take specific note that if you do not object, SARS’ version of the matter is taken as factually correct and -- cadit quaestio!
6. The dispute process can leave taxpayers in limbo for years. One tax expert, Jean du Toit, an attorney from “ Tax Consulting South Africa”, says that, “ (S)ars can drag out the dispute for as long as they want. Taxpayers waste a lot of time and resources fighting the disputes – so they just abandon their appeals”.
7. Another expert, Nico Theron, author of “ Practical Guide to Handling Tax Disputes”, has accused SARS of raising tax disputes unnecessarily, saying that in most cases the service prejudices taxpayers.
8. Yet another expert, Nico Theron, author of “Practical Guide to Handling Tax Disputes”, says with taxpayers under immense pressure from the economic fall-out from the Covid-19 pandemic, they are more likely to raise disputes to reduce their tax burden. And because of a lack of clarity on SARS’ rules and procedures, taxpayers must be informed of the remedies available to them.
9. Theron says that the single biggest cause for concern in the context of tax disputes is that, over the period investigated by the Tax Ombudsman, 70% of appeals were conceded to, in full, by SARS.
10. Theron shows further that once an assessment has been raised, and only once your objection thereto has been disallowed, can you appeal. “If one accepts this 70% statistic from the ombudsman as correct, this is nothing short of startling, and suggests that something is seriously amiss with the objection process”.
11. Theron says that it is not inconceivable that objections may be disallowed by SARS because they are vague, lacking evidence or based on unsound arguments. Many assessments should never have been raised, but while there is little you can do to stop SARS from raising an assessment, you can stop it from forcing you into an appeal when that assessment has no merits.
12. Gert van Heerden, the head of “legal” at the Tax Ombudsman, says that SARS is raising assessments that should never have been raised at all. The majority of these cases are known as “onus cases” and relate purely to whether or not a taxpayer has the correct documents to substantiate the declaration on his/her return.
13. The assessment rate has declined owing to improved data validation systems at SARS, according to Van Heerden , and the fewer verifications that are done, the fewer cases will go to the dispute resolution arena. He says that the Ombudsman’s office is concerned about the collection processes, with harsher and faster collection steps being taken. “We’ve already seen where Sars took money out of bank accounts improperly. Hands down the biggest problems we encountered were in terms of supporting documentation. The appeal has become a document-exchange exercise – that is where Sars and the taxpayer have a discussion, sitting with each other. Only at the appeal stage, does Sars say it is not happy with, for example, the logbook that’s been provided or taxpayers don’t provide information until that stage. The problem starts when the assessments are raised, because there is a serious lack of communication between Sars and taxpayers, which snowballs” (emphasis added).
SOURCE: PERSONAL FINANCE/TAX