• Taxpayers Have Rights After All
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Tax payers have rights after all

02 August 2017

The Eastern Cape Division of the High Court recently reprimanded the Commissioner for SARS for not affording a taxpayer one of his basic rights in terms of current tax legislation.

Esther van Schalkwyk, Tax Manager at BDO South Africa, mentions that the taxpayer who brought the application is a certain Mr Nondabula, a businessman and sole proprietor of a fuel service station in the Eastern Cape. Mr Nondabula applied for an order preventing SARS from issuing a Third Party Notice and to compel SARS to withdraw a Third Party Notice already issued, pending the outcome of his objection to an additional assessment for income tax.

“Under the Tax Administration Act, a senior SARS official may issue a Third Party Notice to any person who holds or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer,” says Van Schalkwyk. “Examples of possible third parties who may be appointed include employers and banks. A third party appointed by SARS is required to pay the money to SARS in satisfaction of the taxpayer’s debt, failing which the third party may be found guilty of an offence and be held personally liable for the taxpayer’s debt.”

“SARS sought to invoke the third party appointment procedures to recover amounts purportedly owed by Mr Nondabula in terms of an additional income tax assessment. Mr Nondabula, however, was not properly informed of the grounds for the additional assessment, nor how SARS arrived at an amount owed in excess of R1 million. He objected to the assessment, an objection which is still in progress.”

Van Schalkwyk advises that when assessing a taxpayer for tax, SARS is (at minimum) required to issue a notice of assessment. The notice of assessment must include the name of the taxpayer; the taxpayer’s tax reference number, or if one has not been allocated, any other form of identification; the date and amount of the assessment; the tax period to which the assessment relates; the payment date of the amount assessed; and a summary of the procedures for lodging an objection to the assessment.

“SARS may issue an additional assessment if a taxpayer submits a return or information that is incorrect or inadequate. SARS will then make an estimate based on information readily available. Having made an estimate, SARS must also provide a statement of the grounds for the assessment in the notice issued to the taxpayer. Mr Nondabula’s notice of assessment was lacking in a few respects. Most importantly he was not given a statement of the grounds of assessment despite SARS having made an estimate in the additional assessment,” says Van Schalkwyk, who goes on to explain that the Court was unimpressed that SARS, having failed to issue a proper notice of assessment, jumped to enforce third party collection proceedings.

“These actions posed a threat to the continued existence of Mr Nondabula’s business and his ability to employ a number of employees. At the very least SARS was required to comply with the provisions of the Tax Administration Act, which includes issuing a proper notice of assessment. The Court found that SARS failed to do so and also failed to promote the values of the Constitution in the exercise of its public function as an organ of state. Mr Nondabula’s application was accordingly granted pending the outcome of his objection.”

“This case serves as a reminder that SARS is not at liberty to act outside of the laws that govern it as taxpayers have rights after all,” concludes Van Schalkwyk.

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