As SARS is under ever increasing pressure to optimise revenue collection from taxpayers, it can be reasonably anticipated that there will be a corresponding increase in disputes between SARS and taxpayers. Whilst many of dispute resolution rules appear to be in favour of SARS, there are a few noteworthy taxpayer-friendly rules.
One such rule is that of section 93 of the Tax Administration Act 28 of 2011 (‘the TAA’) which allows the taxpayer, under certain circumstances, to request a reduced assessment from SARS.
This article explores the provisions of section 93, the provisions of prescription under section 99 of the TAA, why section 93 is a unique remedy in favour of the taxpayer and also the obstacles in applying it in practice.
Section 93 of the TAA empowers SARS to issue a reduced assessment to a taxpayer if:
- The taxpayer is successful in an objection or appeal;
- It is necessary to give effect to a settlement reached between SARS and the taxpayer;
- It is necessary to give effect to a judgment issued pursuant to an appeal;
- SARS is satisfied that there is a readily apparent undisputed error in the assessment by either SARS or by the taxpayer in a return;
- A senior SARS official is satisfied that the assessment was based on:
- The failure to submit a return or submission of an incorrect return by a third party or by an employer;
- A processing error by SARS; or
- A return fraudulently submitted by a person not authorised by the taxpayer; or
- The taxpayer in respect of whom an estimated assessment has been issued requests SARS to make a reduced or additional assessment by submitting a true and full return or the relevant material within 40 business days from the date of assessment.
In October 2021 SARS issued a Draft Interpretation Note setting out its interpretation of the meaning of “readily apparent undisputed error” as referred to in section 93(1)(d) of the TAA.
Of critical importance is that SARS may issue a reduced assessment under section 93 even where no formal objection has been lodged against the assessment or appeal noted by the taxpayer.
A fundamental rule of tax law is that of prescription. In broad terms, prescription is a process which ends a right or a duty after a certain period of time has elapsed. Generally, once prescription applies, SARS is unable to re-open assessments that have prescribed and similarly, taxpayers are unable to object against assessments which have prescribed. The purpose of prescription is to bring finality to assessments issued by SARS.
In terms of section 99 of the TAA, prescription generally applies to original and self-assessments as follows:
- Three years after the date of assessment of an original assessment by SARS;
- In the case of self-assessment for which a return is required, five years after the date of the assessment of an original assessment –
- By way of self-assessment by the taxpayer; or
- If no return is received, by SARS;
- In the case of a self-assessment for which no return is required, after the expiration of five years from the –
- Date of the last payment of the tax for the tax period; or
- Effective date, if no payment was made in respect of the tax for the tax period.
Taxes such as PAYE and VAT are classified as self-assessment taxes.
Section 99(2)(d) and (e) of the TAA provide that prescription will not apply where it is necessary to give effect to:
- the resolution of a dispute under objection or appeal;
- an assessment referred to in section 93(1)(d) above provided SARS became aware of the error referred to in that subsection before the expiry period for that assessment; or
- where SARS receives a request for a reduced assessment under the circumstances set out insection 93(1)(e) above (failure to submit a return or incorrect return by a third party, processing error by SARS or a return fraudulently submitted by an unauthorised person).
Generally, prescription will not apply where the full amount of tax chargeable was not assessed due to fraud, misrepresentation or non-disclosure of a material fact.
Where prescription does not apply, the taxpayer may still request SARS to issue a reduced assessment in terms of section 93 of the TAA.
What this means in practice is that where assessments are older than three or five years, as the case may be, the taxpayer has no remedy to object or appeal against that assessment. At first glance, one might think that the dispute resolution process ends there, but this is not always the case where section 93 applies.
This is of considerable value to a taxpayer as an error in an assessment may only be identified in later tax years (for example, the taxpayer discovers a SARS processing error on its 2016 assessment whilst completing its 2022 income tax return). Under normal dispute resolution rules, the taxpayer will not be able to object against the 2016 assessment as that assessment has prescribed (as three years or more have elapsed since the date of the 2016 assessment). However, the taxpayer can still apply for a reduced assessment in terms of section 93 as the one of the circumstances of paragraph (e) above apply (in this example, a SARS processing error).
The practical application of section 93
On a practical level, SARS e-filing has a ‘dispute’ work page where aggrieved taxpayers can submit their objection or appeal against the assessment or certain decisions made by SARS. The advantage of having this platform available on SARS e-filing is that comfort can be found that once the objection or appeal has been electronically submitted via the ‘dispute’ work page, it will be automatically diverted to the correct division within SARS which will then consider the technical or substantive merits of the objection or appeal lodged.
However, there is no equivalent platform on SARS e-filing to submit a section 93 application. For example, should the section 93 application be submitted via the ‘dispute’ work page on e-filing, the application is automatically rejected by SARS with the error message ‘Dispute more than 3 years after assessment or decision not allowed’. In other words, the section 93 application is automatically rejected in terms of the rules of prescription notwithstanding the fact that in certain circumstances, as explained above, prescription does not apply.
The aggrieved taxpayer is then forced to consider other possible routes to submit its request for a reduced assessment. One option which may be considered is to email the section 93 request to SARS, or to submit it via the On-Line Query System on the SARS website. However, with both these options, the request is unlikely to be channelled to the correct division within SARS to effectively assess the validity of the section 93 application. There is a risk that the application simply gets lost in the SARS system. Even physical delivery of the application at a SARS branch office will also be rejected as dispute related matters are usually not manually accepted by SARS branch offices.
Assuming the taxpayer does find a way to submit the application to SARS, a further obstacle arises. As section 93 applications are not governed by the rules that apply to objections or appeals, which are subject to very strict time limitations on both SARS and the taxpayer, the taxpayer cannot compel SARS to respond to the section 93 application within a certain period of time. This leaves the taxpayer at the mercy of SARS with numerous follow-up requests invariably required for SARS to process the application.
The taxpayer may also approach the SARS Complaints Management Office and, if there is no satisfactory outcome at the SARS Complaints office, the taxpayer’s last resort is to engage with the office of the Tax Ombud. However, the Tax Ombud can only issue a non-binding recommendation to SARS regarding a service matter or a procedural or administrative matter arising from the application of a Tax Act by SARS. The Tax Ombud has no mandate to address technical matters and is therefore precluded from addressing the technical substantive merits on which the request for the reduced assessment is based.
A possible solution
Whilst the spirit and intention of section 93 is clear, the practical application of this section is fraught with the difficulties and obstacles outlined above. The legislation and practical application are not congruent and can often leave the taxpayer frustrated with red tape and procedure.
In our view, a simple remedy to address some of the obstacles discussed above is simply for the SARS e-filing system to be updated to include a platform which will allow section 93 applications to be electronically submitted. The taxpayer would then be in a position to know that the application has been successfully received by SARS and that it will be channelled to the correct division within SARS to deal with the substantive merits of the application.
Introducing this platform would ensure that the intention of the legislation and the rights of the taxpayer are equally balanced. It will also allow for easy administration and excellent service delivery as promised in the SARS Service Charter.
BDO will submit this recommendation to SARS with the hope that the current system can be updated and to help simplify the life of the taxpayer.
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