Taxpayers have the right to obtain reasons for decisions by SARS.
When I was about three years old, my mother admonished me not to play with matches, and like the precocious brat I was, I demanded to know “why”. Many a parent, faced with similar demands from their offspring, would be tempted to exert parental authority in the form of those four words of finality: “Because I said so!”
But in my case, my mother decided that I needed a more compelling argument – one I would never forget for as long as I lived. The response that she provided came in the form of a visit to the burns unit at the local children’s hospital, and even now, some thirty-six years later, I can still hear the cries of agony from those children who had sustained burns of varying degrees. Needless to say, the lesson was well-learned – I never again played with matches.
This childhood memory brings to mind a case that went before the Gauteng Tax Court a few years back. In Qwa-Qwa Cash and Carry (Pty) Ltd v CSARS [2005] ZAGPHC 121, the taxpayer claimed to have exported goods to its customers in Lesotho. As far as Value-Added Tax (VAT) is concerned, any goods supplied by a VAT vendor to a customer outside the Republic of South Africa are zero-rated for VAT purposes. This means that instead of charging the standard rate of 14% (as would be the case for local sales), the transaction “attracts” VAT at 0%.
For reasons not disclosed in the case before the Tax Court, the VAT assessor at SARS was not convinced that the taxpayer had actually exported the goods in question, and responded by issuing an assessment for the undeclared VAT. In addition, a penalty (in the form of additional tax) of 200% of the VAT due was imposed.
Given that SARS has borne the brunt of many a fraudulent scheme whereby goods ostensibly exported were declared at zero-rate, in fact, never left the country, presumably resulting in the VAT actually paid ending up in the fraudster’s back pocket, seemingly draconian actions such as this are understandable.
However, in contrast to the parent who may well get away with “because I said so” as a response, SARS is legally obliged to provide adequate reasons for a decision of this nature.
Naturally, the taxpayer in this cases wanted to be provided with the reasons for the assessment and additional tax, and in terms of Rule 3(1)(a) of the Rules of Procedure of the Tax Court (provided for under Section 107A of the Income Tax Act), such a request was submitted to SARS, which in turn replied that adequate reasons had already been provided.
Such “reasons” were in fact in the form of a multitude of documents that SARS claimed to be in the taxpayer’s possession – none of which, according to the Tax Court, set out clearly the specific reasons for SARS issuing the assessment with penalties.
It was also pointed out that unlike penalties that are triggered automatically, such as those arising on the late payment of VAT, the imposition of additional tax is firstly the result of a conscious decision by SARS, and secondly is only payable in cases where the taxpayer intentionally sought to evade the payment of VAT or attempted to secure a refund to which it is not entitled. Additional tax can therefore only arise from two conscious decisions on the part of SARS: firstly, the conclusion that there was an intention to defraud, and secondly, in the determination of the amount of the penalty.
During the deliberation of the facts presented before it, the Tax Court referred to an Australian case (Ansett Transport Industries (Operations) Pty Ltd v Wraith (1983) 48 ALR 500), in which it was held that the decision-maker must “explain his (sic) decision in a way which will enable a person aggrieved to say, in effect: ‘even though I may not agree with it, I now understand why the decision went against me. I am now in a position to decide whether that decision has involved an unwarranted finding of fact, or an error of law, which is worth challenging.’
This requires that the decision-maker should set out his understanding of the relevant law, any findings of fact on which his conclusions depend (especially if those facts have been in dispute) and the reasoning process which led him to those conclusions. He should do so in clear and unambiguous language, not in vague generalities or the formal language of legislation”.
The court accordingly found that the taxpayer is entitled to adequate reasons why the assessment and additional tax was raised, and ordered SARS to provide the taxpayer with such reasons leading to its decision.
WRITTEN BY STEVEN JONES
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants.
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