There are ways to reduce frustration, save time and costs when dealing with SARS disputes.
With tax filing season in full swing, many taxpayers are dealing with the reality of challenging a SARS assessment. However, the Office of the Tax Ombud recently found that roughly 94 percent of certain assessments raised by SARS over the period investigated lacked merit. This means that taxpayers should not have had to pay or otherwise deal with the consequences of an additional assessment.
During an interactive CFO webinar, experts from Unicus Tax Specialists SA frankly discussed ways to reduce lost time and costs associated with challenging a SARS assessment.
The webinar kicked off with insight from attendees, with one in two attendees noting that SARS had raised additional income tax, VAT or PAYE assessments in the last 12 months at their company. In addition, attendees noted that there was no audit or verification on the additional assessment raised by SARS on any tax type on the company in the last 12 months.
These findings came as no surprise to Unicus Tax Specialists SA managing partner Nico Theron. “Recently SARS has been raising assessments from nowhere; we are seeing a trend. SARS does not have the capacity that it used to have. These assessments are not issued in compliance if there is no audit or verification and we suspect this is challengeable on procedural grounds,” he said.
Wikus Swart, manager at Unicus, added, “In terms of timeframes, once an objection is lodged, SARS has 60 days to respond with a decision if documents are not requested. In the Ombuds report last year, the systemic investigation report showed that the majority of times SARS does not comply with time periods.”
According to Nico, taxpayers have the option of following a conservative approach through use of a complaint process, which may work and often takes a long time, or force SARS to comply by issuing a note of intention to apply for judgement.
“A judgement is an effective way as there are time periods prescribed by law. We have found that when an objection is electronic via e-filing, SARS abides by the time periods more often than when the objection is offline. The biggest issue is on the appeal, as the entire appeal process in SARS is manual and time periods are missed more often,” he said.
Nico added, “When I say start litigation, people often say it is too expensive. The internal appeal process is extremely time consuming. This is a way to call SARS to action. It can just take a letter indicating that it is contrary to the Public Management Finance Act (PFMA) addressed to the right person and that solves the problem without necessarily going to court.”
In responding to a question about the time period for a SARS audit, Wikus highlighted that the Tax Administration Act does not set a timeline for complete audit verification.
“There are no time periods prescribed when SARS does an audit. However, the taxpayer should be provided with a progress report, which must contain the stage of completion, scope, etc. When an audit drags on, we go to the auditor and say you haven’t filed progress reports and this often speeds up the process,” Nico explained.
He added that an audit is different from a verification. “A verification is not an official determination. It is checking the disclosure against the third-party information, an external data validation. With an audit, it is more direct questions and investigations. The taxpayer is called on to explain specifics, like why legal fees are deductible.”
Nico noted, “There are a list of obligations to do an audit. When we launch an objection, we check what has been done, including what went on before in terms of the verification and look at the lawfulness of the assessment in question, including non-compliance.”
According to Wikus, if SARS is auditing one period, then it should not affect the refund of another period. “They have to release the refund. It is unlawful to withhold. It can only be withheld for the period under audit,” he said.
It is important to note that the way in which a taxpayer responds to an audit is crucial to setting the matter up for dispute.
“SARS can say that an objection is invalid. We then determine if the objection is validly declared invalid, in which case an objection can be lodged and refiling takes place or invalidly declared invalid. It can be a never-ending deadlock with the objection going nowhere. With the use of SARS standard operating procedures and the law, we can push to get over the hurdle and get the matter resolved. There the chances of it ending up in court are basically non-existent,” Nico said.
