When can the Tax Man come knocking?
The collection, assessment or otherwise relating to tax is governed by the Tax Administration Act 28 of 2011 (“the TAA”). It is in terms of the TAA that the South African Revenue Service (“SARS”) is entitled to assess any tax return made to it and to alter the amounts payable by the taxpayer.
The question we are faced with is, is SARS allowed to conduct and revise an assessment on any taxpayer?
The answer can be found in Section 95 of the TAA which states that:-
“1. SARS may make an original, additional, reduced or jeopardy assessment based in whole or in part on an estimate if the taxpayer-
- Fails to submit a return as required; or
- Submits a return or information that is incorrect or inadequate.
- SARS must make the estimate based on information readily available to it.”
There is no settled law regarding the abovementioned requirements laid down in the TAA (the “jurisdictional facts”) and it is therefore submitted that based on the abovementioned requirements the onus is on SARS to prove that the taxpayer did not submit a return or that the return is incorrect or inadequate based on the information available to it.
What must be borne in mind is Section 102(2) of the TAA which states that:-
“2. The burden of proving whether an estimate under section 95 is reasonable or the facts upon which SARS based the imposition of an understatement penalty under Chapter 16, is upon SARS.”
In reading the two cited sections above it becomes apparent that an amount, transaction, event or item in the context of an estimated assessment made by SARS in terms of Section 95 of the TAA can only be determined after the jurisdictional facts in Section 95(1)(b) of the TAA have been satisfied and proved.
Where the jurisdictional facts are not present, there can be no lawful estimate and hence no, “amount, transaction, event or item.”
It is submitted that it is not enough for SARS to make the mere allegations that a taxpayer’s returns are incorrect, it must prove it with the information at its disposal.
Any allegation SARS may make regarding the inadequacy or incorrectness of a taxpayer’s return is tantamount to an allegation of fraud. It is an allegation that implies dishonesty on part of the taxpayer and not a mere oversight when the returns were submitted.
It follows therefore that SARS must prove the existence of the ‘deception.’ This was illustrated in the case of Natal Estates Ltd v Secretary for Inland Revenue 1975 (4) SA 177 (A), where it was held that:-
“[i]t is clear that it is a serious matter to charge someone with fraud. For this reason, the respondent [i.e. SARS] bears the onus to establish the existence of the deception and the intent to defraud in making a misrepresentation.”
It is evident that SARS must prove (not merely allege) that the taxpayer submitted an incorrect or inadequate return before it is lawfully allowed to estimate the taxpayer’s income. It is only after overcoming this onus in terms of Section 95 of the TAA that SARS may adduce evidence to overcome its onus in terms of Section 102(2) of the TAA that the estimate is reasonable.
In conclusion, SARS must first prove that a taxpayer’s returns are inadequate or incorrect and then it must further prove that its revised assessment is reasonable. It is only after these 2 two legs have been met that the onus will then shift to the taxpayer to dispute the amount as revised.
