South Africans living or working abroad can no longer avoid the long arm of SARS. Under pressure to meet its revenue quotas, the tax authority has started auditing the country’s non-compliant expatriates in earnest.

“We have been warning expatriates that this was coming and now that it’s here, the time for hiding one’s head in the sand is over,” says Jonty Leon, Legal Manager (Expatriate Tax) at Tax Consulting SA.         

He advises those intending to relocate to another country to follow the formal exit procedures and, most importantly, ensure their tax affairs are in order beforehand. He also advises that those that have already left permanently, should ensure that they have done so in a compliant manner, and have had themselves noted as non-resident for tax purposes.

Gone, but not forgotten
Whether a South African must declare their worldwide income and pay tax on it to SARS is determined by their tax residency status, not their physical location or period outside the country. Leon states, “Tax residency of South Africa is not determined solely on the amount of time spent in the Republic, this is a far more complex issue which must be technically dealt with in terms of the law.”

The safest route to remove ambiguity on tax residency status is to follow the formal financial emigration process. This process is being changed and a new more stringent regime will be implemented from 1 March 2021.  

This may come as a shock to those who believe that, once they set foot on foreign soil, they are free from any further tax obligation to South Africa. More so for those who left the country without settling their tax debt, even if they have been gone for decades.

“With stricter legislation to back its efforts and an emerging system of global financial data sharing as wind in its sails, SARS is more than capable of detecting taxpayers who historically flew under its radar,” says Leon.

The warning signs
According to Leon, several warning signs arose over the past year.

The first was changes to the expatriate tax laws that came into effect on 1 March 2020, soon after SARS launched its dedicated Foreign Employment Unit, which is focused on South Africans working abroad.

The second warning was the announcement that the current financial emigration law would be amended, which in the past has been successful in confirming with SARS and SARB one’s non-resident status. The change will inherently make it more difficult to cease tax residency and with a new and, as yet, undisclosed replacement process on the horizon, there has been a massive influx of applications to beat the deadline. 

The third sign was the removal of the term “wilfully” from the Tax Administration Act when dealing with non-compliance, giving SARS greater leverage to prosecute anyone claiming negligence when failing to meet their tax obligations. This is in line with the reasoning for the change in the expatriate tax legislation previously, where the rife tax non-compliance of South Africans abroad was noted during Parliamentary sessions in August 2017.

Lastly, SARS has begun a two-pronged attack strategy:
-          Firstly, through audits calling for individual expatriates to prove they are non-residents and justify their intentions – some audits calling for proof that the taxpayer had obtained an Emigration Tax Clearance Certificate when leaving South Africa; and
-          Secondly, by audits on offshore income revealed through the common reporting standard (CRS). According to Leon, this comes as no surprise, as SARS is targeting those who have historically been able to “hide” assets and funds, but which will no longer be possible due to the exchange of information between jurisdictions.

Options
Leon says South African expatriates and those wishing to emigrate still have several options available to them.

For one, they can urgently apply for financial emigration until March 2021. “National Treasury confirmed that applications submitted prior to that date will be processed under current legislation,” he says.

They can also take advantage of any double tax agreement between their chosen country and South Africa. As the tax implications of such agreements vary between jurisdictions and the fact that these agreements do not apply automatically to the taxpayer, they should seek advice from an expatriate tax expert.

Above all, if an expatriate is not tax compliant, they can approach SARS under the Voluntary Disclosure Programme to pay their back taxes along with interest and penalties but without prosecution. This process must also be undertaken very carefully, as specific requirements must be met.

“SARS has the advantage now, so waiting to see what happens is a course of action I do not recommend,” says Leon.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jean du Toit, Head of Tax Technical at Tax Consulting SA

The days where SARS shuts its eyes to taxpayers’ offshore holdings are thing of the past. SARS is finally utilising the Automatic Exchange of Information regime to pin down taxpayers who have not disclosed their offshore interests and numerous taxpayers have already received some alarming notices to this effect.

The notice
The notice informs the taxpayer that SARS intends to initiate a review of their tax affairs, based on information it received from 87 foreign jurisdictions through the Automatic Exchange of Information, regarding the offshore holdings of South African taxpayers.

After recovering from the shock of the introductory words of the notice, SARS extends an olive branch and states that it wishes to engage with the taxpayer first, in the interests of administrative justice. The consolation is short-lived though because SARS then proceeds to direct a detailed and onerous information request at the taxpayer.

This starts off with a request to confirm that you have offshore holdings and then requires detailed information regarding the amount invested, the nature of the investment and the location thereof. The final question asks the taxpayer to explain why this was not disclosed on their tax return.

As if SARS knows your next move, the notice asks the taxpayer to inform them in the response if they intend to file an application under the SARS Voluntary Disclosure Programme (“VDP”).

The notice signs off by reminding the taxpayer that they have 21 working days to respond to this Gordian knot of a request and reminds you that a failure to do so constitutes a criminal offence.

What to do next
It is perplexing that SARS almost invites taxpayers to do a VDP, even after they have received this notice. It is critical to note that a VDP application must be “voluntary”, otherwise it does not meet the requirements of a valid VDP application under section 227 of the Tax Administration Act.

Technically, if the SARS notice prompts the taxpayer to come forth and file a VDP application, it may not be considered “voluntary”. It is not clear if SARS is making a concession on this aspect, but it would be very interesting to see if the VDP Unit will accept an application if it was filed pursuant to this notice.

In any event, it is important to note that the SARS notice does not give you the option to either respond or to file a VDP; it just asks you to confirm your intention. You are still very much obliged to respond to SARS’ queries. If you have received such a notice, you would be well-advised to speak to a professional, before you respond, especially if you have not disclosed your offshore interests to SARS.

First-mover advantage
If you have undisclosed offshore interests and you have not yet received this notice, then you have a small window to file a VDP application in the ordinary course. A timeous VDP application may avoid the unpleasant information gathering process initiated in terms of this SARS notice and provides you with amnesty from criminal prosecution and understatement penalties.

If you have an ounce of wisdom, this will be your immediate course of action. Be warned though, the VDP process may be the path of lesser resistance in this instance, but it should not be undertaken without the help of a professional.

deally, you should speak to an attorney who offers legal professional privilege and who is well-versed in this process.

Take away
For those with undisclosed offshore holdings, this should serve as a wake-up call. SARS now has the means and the guile to uncover your interests and, with prevailing budget constraints, SARS has no choice but to turn to untapped pools of revenue. It is no longer a question of if SARS will come knocking, but when.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jean du Toit, Attorney and Head of Tax Technical at Tax Consulting South Africa 
 
The Pretoria High Court has granted SARS’ application to preserve more than R4bn in state capture loot. SARS’ victory in these urgent court proceedings reveals the importance of the taxman’s involvement in recovering proceeds of state capture and bringing the beneficiaries to book.
 
With little to show from the State Capture Inquiry thus far, SARS’ intervention reminds us how powerful tax legislation can be in dealing with complex crimes. Lest we forget, it was the taxman who tripped up some of the most notorious and organised criminals of the twentieth century.
 
State of the Inquiry
The cost of the State Capture Inquiry is currently hovering at around R800m. This is not the only judicial investigation funded by the public in recent times, but it is by far the most expensive and the end is not yet in sight. But, even with some damning testimony by several witnesses, South Africans have not yet seen any bang for their buck.
 
The truth is, we are light years away from seeing any convictions on criminal charges such as corruption, bribery or fraud. The state’s onerous burden of proof, the complexity of these crimes and the resources required to investigate them are but a few factors that mean that it can take the National Prosecuting Authority (NPA) years to build a robust case. Even then, a conviction is by no means guaranteed.
 
Tax law v criminal law
There is a reason why federal prosecutors turned to tax law to get a conviction against individuals such as Al Capone. Tax evasion is not a crime that concerns itself with the legality of the receipt, the purpose thereof, by whom it was paid or what it was used for. The taxman simply needs to establish if the loot was in fact disclosed and disclosed correctly.
 
For this reason, tax evasion is a far more attainable conviction because proving the elements of the crime is plain sailing when compared with for example corruption or fraud. This case is no different; SARS’ application to preserve the funds is based on the fact that the funds were incorrectly claimed as a tax-deductible expense.
 
The testimony at the State Capture Inquiry has provided the smoking gun and if SARS deploys some of its finest investigative auditors, it will make life very difficult for those who shared in the loot.   
 
SARS holds the key
The Tax Administration Act bestows upon SARS wide powers to act swiftly and decisively, as demonstrated in this case. If the proceeds of state capture are to be recovered through the criminal justice system, chances are we may never see those funds again.
 
SARS on the other hand has a powerful arsenal to collect the money if it determines that it was not taxed as it should have been.
 
The NPA should team up with SARS, follow the money and obtain early convictions for tax evasion. That is not to say that the NPA should not eventually pursue other, perhaps more serious, charges. In fact, this will give the NPA time to build an unassailable case on other charges in the meantime.
 
This strategy ensures for a slam-dunk upfront and it is quite possible that it may lead others to join the likes of Angelo Agrizzi to come forward, to strike a deal that may lead to the bigger fish ending up behind bars.
 
ENDS
 
MEDIA CONTACT: Rosa-Mari le Roux , 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa

Authored by: Thomas Lobban, Legal Manager for Cross-Border Taxation at Tax Consulting SA

The hotly debated amendment to Section 10(1)(o)(ii) or “Expatriate Exemption” took effect from 1 March 2020, with the questions on many expatriates’ minds often being “how will SARS find me? What does the SARS audit of an expatriate look like and what questions should I expect?”

Anyone who has been sharply following the SARS expatriate tax law change will know that expatriates are being earmarked for aggressive targeting. They would also know SARS started a dedicated “Foreign Employment” unit to execute on this mandate, but what happens when you are on their radar and the audit commences?

The evidence
On an audit request dated 02 November 2020 from SARS, the following questions/requests were posed to the expatriate filing the return:

1. Submit 12 months bank statement with all income and a description which reconciles with what was declared to SARS;
2. Submit a copy of the tax clearance application and approval for immigration;
3. On the unsold property in South Africa, what is the intention of holding this property?;
4. Date of departure from OR Tambo airport.

The questions speak for themselves and will be a reality check for those who have been putting off dealing with their tax obligations decisively, or who followed the “quick and easy” solutions, which leave room for maximum risk and little protection in the long run.
​
Unfortunately, expatriates were forewarned on being compliant, and with SARS’ recent inclusion of the words “wilfully or negligently” in the Tax Administration Act, one cannot take these questions lightly when responding nor plead ignorance after the fact; the consequence of which include imprisonment or a hefty fine.
 
Onus remains on the taxpayer
What remains important is that, if you are claiming non-resident tax status of South Africa –

1. You want your SARS tax record to show financial emigration before the SARS audit starts.
2. Financial emigration is only possible until end February 2021; when there will be a new, uncertain process; of which conveniently no details have been shared, but it will be more stringent.
3. Where you cannot do financial emigration, the double tax agreement tie-breaker clause is an equally legitimate route to break residency; but this must be properly done and declared to SARS.
4. The SARS system is clearly now identifying expatriates and they have started with enforcement; with the shortage of revenue collection, they can leave no stone unturned and some see expatriates as an easy target.
5. Where you cannot do financial emigration or use a double tax agreement, you need to look at the various legitimate means of reducing your SARS obligation.

Closing remarks
Those who have left their situations to chance or “fly-by-night” advice will unfortunately need to deal with the consequences. Many think that as they have not heard anything from SARS yet, that they have managed to keep themselves hidden.

However, SARS is only starting to “warm-up” in its collection duties from South Africans earning foreign income, who have legitimately been a softer target due to rife non-compliance in the past, and which makes it even easier for SARS to raise an audit.

Simply put, formalise your tax residency status with SARS or get ready to deal with a tougher SARS going forward. Click here to view the SARS audit request mentioned above.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Roxanna Naidoo, Admitted Attorney at Tax Consulting South Africa. 

While the country was under lockdown, it appears SARS and National Treasury have been hard at work, using this time to refine the law in SARS’ favour. These changes do not refer to the Covid-19 tax relief changes but are aimed at closing tax loopholes and to simply give SARS and the National Prosecuting Authority more teeth. Ask your accountant or tax advisor to help you understand the amendments and their impact on your tax planning and tax compliance strategy.

1. Raising of tax assessments by SARS simply using an estimate
SARS has had enough of taxpayers ducking and diving from their tax administration obligations. In terms of the new amendment, SARS has the power to raise an estimated assessment where the taxpayer does not respond to a request from SARS for relevant material, but this has been thought through carefully.

The law amendment also now ensures that taxpayers will be barred from lodging an objection if the taxpayer does not submit the material requested. Should SARS have you on their radar or have questions subsequent to a lifestyle audit, ignoring a request for relevant material means SARS can raise an estimated assessment and impose penalties and interest.

Getting untangled from this, even where you are innocent, will become far more difficult. Make sure you take your accountant’s calls or respond to their emails, as adopting the ostrich approach will get you into deep trouble.

2. Employer provided bursaries
Are you an employer who has tax structured bursaries, including for relatives of your employees? Or perhaps an employee who has benefitted hereon in the past? The law on this has been amended substantially and from 1 March 2021, using employer-provided bursaries as a mechanism to structure your remuneration from a tax perspective is no longer allowed.

These bursaries must be disclosed on your IRP certificate, and not doing so is a criminal offense. Thus, there is no place to hide hereon and this is truly something of the past. There are now very limited instances where this tax exemption can be utilised, as part of a tax optimal total reward strategy.

3. Withdrawal from retirement funds upon emigration
Have you emigrated or are you planning to emigrate from South Africa in the near future, with retirement funding in a pension preservation fund, provident preservation fund or retirement annuity fund? You are on borrowed time if this is the case and you need to urgently finalise and file your financial emigration application, before 1 March 2021.

If you miss this deadline, your retirement funds will be locked-in for at least the next 3 years in South Africa. We also expect more to come from the compulsory preservation of retirement funds, meaning the government may have the final say on how your retirement funds will be dealt with in future.

4. First good news item – unexpected tax relief for South Africans working abroad
Many expats were concerned that they would not make the 183-and-61 day tax exemption, as a result of the lockdown. SARS has kindly proposed to reduce, for a limited period, the 183 days requirement to 117 days. This rule change creates interesting tax planning opportunities and requires a deeper look for anyone who was outside South Africa for more than 60 days continuously in 2019 or 2020.

5. Living Annuities and termination of trusts
The era of setting up personal trusts left right and centre has come to an end with the introduction of section 7C. There are still instances where old trusts make sense and limited instances where one’s objective is asset protection.

But if you think that creating a new trust will benefit you, perhaps you should get a second opinion from your accountant. You may sound important over dinner referring to your trust or even prevent your children from fighting over who gets the beach house, although inevitably they often still do.

But do not think for a second you will pay less tax, as the opposite is true. Where you have a trust with a living annuity, you need to be aware of the new law changes when considering the death of an annuitant.

6. Circumvention of the anti-avoidance rules for trusts
SARS has now amended the legislation in order to curb the abuse of the introduction of low interest or interest-free loans, advances or credits for trusts.

Just to rub salt in the wounds of those who still persist in thinking trust structures are tax-efficient, SARS has now shown that you need to stop listening to trust advisors who keep trying to find the next loophole. As SARS sees it, they will close it, leaving you with an overly complex trust structure that needs untangling.  

7. Reimbursing employees for business travel
SARS has kindly relaxed their strict regulations when excluding business travel expenses. This is, however, subject to the employer’s policy provisions. Make sure your company travel policy is updated to utilise this tax relief.

This is very much part of the equal pay for equal work value methodology for responsible employers where employees were left with little recourse regarding these tax burdens due to an oversight or the employer’s failure to execute the instruction for reimbursement.

8. Roll over of amounts claimable under the employment tax incentive
Excesses of Employment Tax Incentive claims for non-compliant tax employers will now not be rolled over at the end of the PAYE reconciliation period. This is to protect taxpayers once they do become compliant.

9. Tax treatment of secured non IFRS 9 doubtful debt
If you own a business that has been negatively affected by Covid-19, you need to talk with your accountant regarding this change. SARS proposes to make provision for the amount of debt to be reduced, differentiating between taxpayers that apply IFRS9 and taxpayers that do not.

10. Potential tax avoidance caused by dividends deductions
Taxpayers were able to structure their investments in order to issue financial instruments to the investors that yield dividends, while it receives interest or other income on its financial assets, thus avoiding tax implications. The new amendments now mean that taxpayers will no longer have the advantage of this loophole.

11. Refund need not be authorised where the matter is under criminal investigation
The proposed amendments further include that where you are subject to a criminal investigation in terms of the Tax Administration Act, any refund owed to you by SARS will be withheld pending the outcome of such investigation. We can only hope this will not be abused by SARS officials, as we stand reminded by the fact that the Tax Ombud has found SARS guilty of delay tactics in paying refunds.

12. The most critical tax law change! Inclusion of the words  “Wilfully or negligently” in tax prosecution
Getting an admitted tax attorney involved on your taxes ensures legal privilege. SARS’ seemingly harmless inclusion of the words “willfully and negligently” when it comes to lesser tax offences increases liability for non-compliant taxpayers, with prosecution resulting in imprisonment or a hefty fine.

By not simply updating your details, forgetting to do something, or making an unintended error can now land you in real trouble. Perhaps now is the time to take your tax administration and compliance extremely seriously, as SARS has just acquired its biggest ammunition yet to discourage non-compliance.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jean du Toit, Jean du Toit, Attorney and Head of Tax Technical at Tax Consulting South Africa 

When engaging in disputes with the taxman, there are many rules you need to be aware of, but the decision in CSARS v The Executor of the Estate of Late Ndlovu (A395/2016) arguably tells the most important.

This decision by a full bench of the Pretoria High Court reveals how high the stakes are when you submit an objection against an assessment issued by SARS – because any items you omit at this point will be considered bygones.

The decision
The dispute between SARS and the taxpayer in this case revolved around the taxation of shares granted to the taxpayer by the Nedbank Group. Importantly, in addition to the tax levied, SARS imposed interest in terms of section 89quat(2)of the Income Tax Act.

In disputing the assessment in question, the taxpayer did not object or appeal against the imposition of the interest and this was only raised during an Alternative Dispute Resolution meeting that followed his notice of appeal.

The matter progressed to the Tax Court where, among others, it had to be decided whether the taxpayer may raise a new ground of dispute that was not included in his objection i.e. the imposition of the interest. The tax Court held there was no prejudice to SARS and the new ground may be introduced.

SARS took the matter on appeal to the High Court, where the full bench had to decide if the Tax Court’s decision ought to be upheld. On the question of raising new grounds not included in the objection, the court referred to the following principle established by the Supreme Court of Appeal in CSARS v Brummeria Renaissance (Pty) Ltd and Other 2007 (6) SA 601 (SCA):
“…But it is also in the public interest that disputes should come to an end… it would be unfair to an honest taxpayer if the Commissioner were to be allowed to continue to change the basis upon which the taxpayer were assessed until the Commissioner got it right…”

But what is good for the Commissioner is good for the taxpayer – the court overturned the Tax Court’s decision and held that taxpayers cannot change the basis of their dispute if this was not raised in their objection.

Take away
We are often approached by taxpayers only once their dispute with SARS has gone awry; often when it has progressed beyond the objection stage.

It soon becomes evident that the taxpayer or their representative failed to address certain pertinent aspects in the objection, which makes it very difficult to salvage what may have appeared to be a very simple matter.

Vague and ill-informed objections can result in very serious ramifications for the taxpayer, even where they may have been assessed incorrectly.

Practically, you should see your objection as your only shot to dispute an assessment and even in the most uncomplicated of disputes, taxpayers are advised to call on a professional who will make your shot count.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
​
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa
​

Authored by: Jean-Louis Nel, tax attorney at Tax Consulting SA
 
Earlier this month, the Pretoria High Court granted a small business owner an urgent basis for relief against the South African Revenue Service (SARS) who depleted his bank account without following due process. The court ordered SARS to set aside the third appointment of Absa who collected R1.3-million on behalf of SARS from the taxpayer’s bank account in terms of Section 179 of the Tax Administration Act (TAA).
 
The Court further ordered SARS to repay the amount collected from the taxpayer’s bank account, together with the costs of the application on a punitive scale within three business days after granting the order. This occurred shortly after the SIP Project Managers vs SARS Commissioner case whereby the court ruled against SARS in respect of third-party appointments to collect outstanding tax debts.
 
Case background
In this case the taxpayer was left with a frozen and empty bank account without any prior notification from SARS. When he realised SARS had collected the full balance of his bank account, he immediately contacted his tax advisor to enquire about his tax compliance.
 
The tax advisor engaged with SARS, advising them of the situation and what detrimental financial effect their conduct has had on the taxpayer where it was apparent that there was no tax debt. The taxpayer had already closed two of his three shops in Johannesburg due to the collection proceedings.
 
SARS undertook to investigate the matter but there was no sign of a quick resolution to the issue. Due to the urgency of the matter the taxpayer instructed his attorneys to approach the Pretoria High Court on an urgent basis. At the time of urgent application and prior to the third-party appointment by SARS, the taxpayer’s affairs for both Income Tax and Value Added Tax (the only two taxes he was registered for) were fully compliant. In fact, it materialised that SARS owed the taxpayer a nominal amount.
 
The correct process
In these difficult fiscal times, SARS is expected to exercise its considerable power to collect the correct amount of taxes to the benefit of the fiscus. However, this does not mean that rogue officials can act outside the law and appoint banks as collection agents, as they see fit.

There are clear rules that must be followed, and this is to the benefit of society, which requires efficient revenue collection, but not abuse of SARS power.
 
In terms of the TAA, the taxpayer has to be notified of any outstanding debt and the subsequent appointment of a third party, such as his bank, to collect the tax if no action is taken by the taxpayer to regularise their tax affairs. If SARS does not properly issue the final letter of demand it is precluded from taking collection steps in the normal cause. It is a peremptory requirement in the TAA for SARS to issue a final letter of demand to the taxpayer, ten (10) business days before SARS can appoint a third party to collect outstanding debt and this was recently also confirmed in SIP Project Managers-judgment.
 
It is imperative that a taxpayer ensure that their rights are protected, especially during the unprecedented times of COVID-19, where we have seen that SARS has adopted a firmer position in collecting outstanding debt.
 
SARS oversight
There remains an unbalanced position in our tax administration law, which does not allow SARS officials to be held accountable for their actions. The Tax Ombud’s powers are restricted, as can be seen from their latest report where SARS appears to have flat out refused the Ombud to interview the implicated SARS officials. It is also unclear whether the Commissioner is acting against his officials internally.
 
For now, a taxpayer’s only remedy appears to approach the High Court for relief. The Pretoria High Court has in both matters before Acting Judges Lingenfelder and Avvakoumides, respectively protected taxpayer’s Constitutionally enshrined rights against SARS.