It is time (For procedurally fair and reasonable enforcement)

“In space-time, events that occur at the same time for one observer could occur at different times for another.”[1]  In the parallel universe of tax administration, everything is relative.  Time is not an absolute. Here, space-time means that when SARS requires a taxpayer to submit documents, 21 days are 21 days.  However, when SARS is required to consider a taxpayer request, 21 days mean one month (or more, depending on whether there is distortion by a heavy object; say a refund due to the taxpayer at the end of the SARS financial year.  A taxpayer has 30 business days to submit an objection to an assessment, while SARS has 60 business days to make a decision on that objection.

There is some debate over whether the laws of physics are universal.[2]  In our little tax galaxy, we can at least rely on the strong gravitational pull of the Constitution and the Promotion of Administrative Justice Act.  We can find solace in the fact that SARS is a creature of statute and, as such, may exercise only the powers conferred on it by the relevant legislation.  For SARS, the Tax Administration Act (TAA), as interpreted and applied by our courts, is as immutable as Newton’s three laws of motion.

First Law – SARS must follow prescribed audit procedure

Section 40 of the TAA empowers SARS to select a person for inspection, verification or audit “on the basis of any consideration relevant for the proper administration of a tax Act, including on a random or a risk assessment basis”.

The procedural requirements, as contemplated in section 42, may be paraphrased as follows:

  • In accordance with Public Notice 788, the SARS official responsible for or involved in an audit must provide the taxpayer with a report indicating the stage of completion of the audit every 90 days.
  • If the audit identified potential adjustments of a material nature, SARS must within 21 business days provide the taxpayer with a document containing the outcome of the audit, including the grounds for the proposed assessment.
  • The taxpayer must then be allowed 21 business days to respond in writing to the facts and conclusions set out in the document.

The SA Tax Court in IT13726 at [30]:

“The respondent’s non-compliance with sections 40 and 42 of the TAA clearly offends both the Constitution and the principle of legality. Accordingly, the respondent’s decision to conduct an additional assessment without notice, must be set aside as it does not comply with the peremptory prescripts of the applicable legislation and it is also constitutionally unsound. In the circumstances, the assessment is found to be invalid.” [3]

Second Law – The decision to issue an additional assessment must rational, not random

Section 92 is a mandatory provision that requires the issuing of an additional assessment if SARS is satisfied that an assessment does not reflect the correct application of a tax Act to the prejudice of SARS or the fiscus.

Holding the principles of legality and reasonableness in reverence, one would assume that a SARS official will go to adequate lengths to consider all relevant information before a declaring “I am satisfied that an additional assessment must be issued on these grounds!”.

In the real world the Supreme Court of Appeal brought SARS to boot in no uncertain terms in the matter of SARS v Pretoria East Motors (Pty) Ltd:

The raising of an additional assessment must be based on proper grounds for believing that, in the case of VAT, there has been an under declaration of supplies and hence of output tax, or an unjustified deduction of input tax. In the case of income tax it must be based on proper grounds for believing that there is undeclared income or a claim for a deduction or allowance that is unjustified. It is only in this way that SARS can engage the taxpayer in an administratively fair manner, as it is obliged to do.[4]

Third Law – SARS must issue a notice of assessment

Section 96 requires SARS to issue to the taxpayer a notice of the assessment.  In the case of an assessment that is not fully based on a return submitted by the taxpayer, SARS must also include in the notice a statement of the grounds for the assessment.

This requirement is so logical and self-explanatory, it almost does not merit the status of an immutable law.  However, the Eastern Cape High Court discovered that in the case of Mr. Nondabula’s, SARS did not hesitate to institute drastic collection procedures although no assessment had been issued:

“Once the stage provided for in section 92 is reached the first respondent is required to comply with the provisions of section 96 by issuing a notice of assessment with all the information required and provided for in section 96.  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.” [21]

“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.” [22][5]

If SARS could adhere to these rules in the exercise of its powers, as it is obliged to do, the taxpayer at the receiving end will at least be well informed and in a position to exercise the right to object to the assessment.

But even if SARS were to toe the line as far as audits go, there is one tiny problem, already identified in a previous article.[6]

The TAA bestows upon SARS the powers of inspection, verification and audit.  An inspection may only be performed for the purposes listed in section 45, for instance to determine the identity of a person occupying certain premises, or to determine whether a person is registered for tax.  However, audits and verifications are the actions that lead to additional assessments and tax liabilities.  Section 42 determines the procedure to be followed during an audit.  No such rules apply to verifications.  A taxpayer is usually informed of that a return is the subject of a verification when SARS issues a notice on eFiling requesting supporting documents.  Should SARS be satisfied, upon receipt of the documents, that the current assessment does not reflect the correct application of the relevant tax Act, an additional assessment is issued.  However, as SARS did not conduct an “audit”, the taxpayer is not informed of the outcome of the verification or of any proposed adjustments.  The additional assessment is issued without any prior notification and if the taxpayer is not in agreement, the only option is to object to the assessment.  Looking back at space-time, this essentially means that a matter that could potentially have been resolved within 42 business days may now take up to twice as long (30 business days to submit objection and 60 business days for SARS to respond) to finalise.

In an annexure to the 2018 Budget Review, our previous Minister of Finance proposed that “a taxpayer be notified at the start of an audit as part of efforts to keep all parties informed.”[7]  Why not use this opportunity to bring the powers of “verification” into the same orbit as “audit”?  Then the rules of reasonable and procedurally fair administrative action can really have universal application in the tax universe.

Annalize Duvenage

Specialist Tax Consultant





[3] TCIT13726 Port Elizabeth, 13 February 2018

[4] SARS v Pretoria East Motors (Pty) Ltd (291/12) [2014] ZASCA 91

[5] VZ Nondabula v The Commissioner: SARS & Another, High Court of South Africa, Eastern Cape Local Division, Case No. 4062/2016

[6] SARS’ powers of audit and verification – Much of a muchness (UKnow October 2015)

[7] 2018 Budget Review, Annexure C – Additional tax policy and administrative adjustments

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