High Court Orders SARS To Play Nice – VZ Nondabula v CSARS & Another

Beyond doubt, the 2018 budget was a controversial swan song for Mr Gigaba.  The tax proposals he introduced will be hotly debated by politicians and experts of all sorts; and deeply experienced by every consumer.

On a completely different level, his admission that tax administration and governance at SARS are causes for concern, is most certainly welcomed.

“Tax morality is a crucial component of a healthy democracy.

It has taken many years and lots of effort to build the foundation of trust that supports our tax morality.

We have seen how quickly that citizens’ trust can be eroded by perceptions of poor public governance.”

The reputation of the collector of revenues was seriously damaged by the scathing reports issued by the Tax Ombud in 2017.  Unfortunately, the Ombud has no real teeth when it comes to dissuading SARS from its bull in a china shop approach to tax administration and it is up to the lonely brave to challenge the mighty SARS in court.

Enter Mr Nondabula, the sole proprietor of a service station and main actor in the drama unfolding before the High Court in Mthatha last year (VZ Nondabula v The Commissioner: SARS & Another, High Court of South Africa, Eastern Cape Local Division, Case No. 4062/2016).  As the owner of a business, Mr Nondabula tried to comply with tax laws and at first this approach seemed to work well.  As Acting Judge Jolwana explains:

“Up to this point the relationship between the applicant and the first respondent appears to have been cordial with assessments being issued and the assessed taxed debt being paid on time.”

However, in 2016 things started going pear-shaped for poor Mr Nondabula.  The chronological sequence of relevant events is as follows:

  1. SARS issued an original assessment for the 2014 tax year resulting in a tax liability of R17 807.84 to be paid on or before 31 July 2014. This amount was duly paid.
  2. SARS issued an original assessment for the 2015 tax year resulting in a liability of R15 768.69. This amount was also paid before the due date.
  3. Then, on 1 March 2016, SARS apparently issued an additional assessment for the 2014 tax year. Why “apparently”?  Well, because on 4 April 2016 SARS issued a statement of account reflecting a tax liability of R1 404 517.97 for the 2014 tax year.  However, the court found that “Notably no ITA34 was issued to the taxpayer reflecting the additional assessment”.
  4. Notice of assessment or not, Mr Nondabula’s accountants submitted an objection to the additional assessment on 4 April 2016. It appears that this objection was treated as invalid by SARS.  Undeterred, the accountants persisted in submitting objections and correspondence to convince SARS to reconsider the assessment and treat the objection as valid.  To no avail.
  5. Meanwhile, SARS had already issued a final demand for payment of the amount of R1 424 690.79 on 11 May 2016. Another letter demanding payment within 10 days was issued at the end of September 2016.
  6. Finally, SARS decided it had had enough and, by the power vested in terms of section 179 of the Tax Administration Act, it issued a notice to the Second Respondent requiring the person (the “Third Party” holding money for or owing money to a taxpayer) to pay the money to SARS in satisfaction of the taxpayer’s debt.
  7. It was now clear that previously “cordial” relationship had broken down and Mr Nondabula approached the court for an order interdicting SARS from invoking section 179 and compel it to withdraw the Third Party Notice.

Given the facts of the matter, the Counsel for the Respondent were in an unenviable position before the court.  The judgment includes a rather technical discussion of the provisions empowering SARS to issue not only a mere additional assessment, but an estimated assessment to boot.  However, the correctness of the assessment is not what is at stake, nor whether SARS acted correctly by issuing an estimated assessment in terms of section 95.

The crux of the matter is that SARS neglected to issue a notice of assessment.  Section 96 of the Act provides that SARS must issue a notice of assessment to the taxpayer.  By choosing not to issue a notice of assessment (ITA34), SARS failed to comply with the peremptory provisions of section 96 of the Act.  Furthermore, in the case of an assessment issued under section 95, SARS must give the person assessed a statement of the grounds of assessment.  This, SARS most definitely did not do.

As far as the learned judge’s view on this oops is concerned, direct quotations will do him more justice than paraphrases:

  • The first respondent is a creature of statute and as such it must operate within the four corners of the statutory provisions which empower it…It therefore cannot do anything not specifically provided for in the Act…nor can it conduct itself contrary to the provisions of the Act.
  • I may mention that the whole of section 96 is couched in peremptory terms, meaning that the first respondent has no discretion when it comes to section 96.
  • Having failed to comply with section 96 the first respondent jumped to the provisions of section 179(1) and issued the impugned Third Party Notice and thus effectively closing down applicant’s business. This was not only unlawful but a complete disregard of the doctrine of legality which is a requirement of the rule of law in a constitutional democracy.
  • There is no doubt that the first respondent dealt with the applicant in an arbitrary manner…
  • The least that is expected of the first respondent is to comply with its own legislation and most importantly promote the values of our Constitution in the exercise of its public power. This the first respondent failed to do.  In failing to provide the applicant with all the information prescribed in terms of section 96 which the first respondent was obliged to provide the applicant, it acted unlawfully and unconstitutionally.

As if this reprimand is not enough, SARS is also ordered to pay the costs of the application.  Hopefully the irony of this order as to costs is not lost on the reader.

Collecting tax is not an easy job and the enabling legislation has been drafted very much in favour of the collector.  In a constitutional state, the least we can expect is for SARS to do what it must do in the way that it should; no more, no less.

Back to the Budget Speech.  Gigaba may have been on his way out, but his remarks have very much the sound of a new broom:

“At the SONA, the President has announced his intention to establish a commission of inquiry into tax administration and governance at SARS.

This year, government will respond to the Davis Tax Commission’s report on tax administration and introduce draft legislation to give effect to some of its recommendations, including those on the accountability of SARS to the Minister of Finance, and the establishment of a supervisory board, as well as measures to strengthen the Office of the Ombud.”

One can only hope.

Annalize Duvenage

Specialist Tax Consultant




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