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Challenging SARS audits in light of the Constitution by Prof. Dr. Daniel N. Erasmus

ABSTRACT

This thesis deals with the relevant law up to 30 September 2012, but the principles are still relevant to the Tax Administration Act, 2011.

This thesis analyses the inter-relationship in particular between ss 1(c), 33, 41(1), 195(1) and 237 of the Constitution of the Republic of South Africa (‘the Constitution’) (collectively referred to as ‘constitutional obligations’); s 4(2) of the South African Revenue Service Act 34 of 1997 (‘SARS Act’); the Promotion of Administrative Justice Act 3 of 2000 (‘PAJA’); and a decision by the Commissioner for the South African Revenue Service (‘the Commissioner’ or ‘SARS’, as the case may be) to exercise his powers under ss 74A and 74B of the Income Tax Act 58 of 1962 (‘ss 74A and 74B of the Income Tax Act’) by requiring taxpayers to produce or provide information, documents and things at the commencement of an inquiry or audit of taxpayers, and concludes that such a decision constitutes ‘administrative action’ as defined in s 1 of PAJA, or, alternatively is subject to the constitutional principle of legality. This conclusion is reached on the basis that such a decision, of an administrative nature made, or leading to a further decision proposed to be made, or required to be made, to issue revised assessments will:

  • have
    been taken by an organ of State exercising a public power in terms of
    legislation;
  • involve
    the exercise of a discretionary power, where SARS determines whether and in
    what circumstances it will require a taxpayer to provide information, documents
    and things;
  • adversely
    affect taxpayers’ rights, and has a direct, external legal effect. The fact
    that the power in question is preliminary and investigative, and that its
    exercise does not in itself determine whether any tax, penalties and interest
    is payable, does not detract from the impending conclusion usually made by the
    same SARS officials that tax, penalties and interest will most likely become
    payable following from the preliminary investigation. The decision imposes on
    taxpayers an obligation to do something (to produce or provide information,
    documents and things) which, but for the exercise of that power, taxpayers
    would not in law be obliged to do, due to taxpayers’ privacy rights in terms of
    s 14 of the Constitution, and entitling them to expect SARS to abide by its
    constitutional obligations. A failure by taxpayers to comply exposes them to
    criminal prosecution under s 75(1)(b) of the Income Tax Act. Furthermore, the
    power exercised by SARS is not subject to the normal objection and appeal
    processes in the Income Tax Act, limiting the opportunity for taxpayers to
    challenge such a decision in terms of the Income Tax Act.

Lastly, there is no relevant exclusion in the
definition of ‘administrative action’ that removes this type of decision from
that definition in PAJA.

11 December 2019
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