In 2020, the South African Revenue Service (“SARS”) raised 4.34 million personal income tax returns, resulting in more than 520 000 (12%) objections. Over the years, South Africans have become convinced that SARS’ sole purpose is to take their money. This, obviously, is done through excessive taxation, or by means of penalties when they are found to be non-compliant, but is that really the case? Is SARS really the terrible institution we are led to believe it is?
Despite the negativity in the market, SARS, for the most part, is complying with their obligations in terms of the Tax Administration Act. Individuals on the cusp of a tax dispute with SARS, or facing litigation in Tax Court, might not have a favourable attitude towards the revenue authority. What must be considered in every unique situation, is how the matter became a dispute.
How did we get here?
Taxpayers are shocked when they receive a final letter of demand or when they notice that they have a tax debt owing to SARS. They are often surprised how quickly matters escalate into a formal or legal matter.
Most disputes originate when errors occur through taxpayers accepting SARS’ auto-assessments on the e-Filing platform without ensuring the correctness thereof, or when individuals make a simple miscalculation on their returns. By following the correct procedures, this type of dispute can easily be resolved without incurring additional charges.
More complex disputes could be resultant from intricate business engagements, working abroad and earning a foreign currency, complicated estates and trusts, or the implementation of new rules or adjustments to the relevant tax acts.
No matter the nature of the dispute, it is imperative to seek professional advice before engaging SARS in the dispute process, towards alternative dispute resolution, or a mutually beneficial compromise arrangement.
Litigation is not only a costly, but also a lengthy and unpleasant, exercise. With their client (not to mention the client’s finances) at the heart of the alternative dispute resolution process, the aim of tax advisors should be to submit first-time accurate disputes. By resolving the dispute speedily, they can avoid proceeding to Tax Court.
When a matter progresses to court, it is in all probability due to the way the dispute was handled. Tax advisors with no legal background are quick to peddle their personal views on SARS, instead of staying up to date with current tax legislation or attaining clarity on the origin of the dispute.
In finding assistance from a tax consultancy, it is important to note that tax dispute resolution is a highly specialised field. Most tax practitioners have limited understanding of the dispute and alternative dispute resolution process, simply because that is not their primary focus in the maze of tax services.
It is therefore best to find an advisory practice that has first-hand experience in dealing with disputes, preferably one who has experience with the dispute process, alternative dispute resolution process and has faced off against SARS in Tax Court.
Pending tax disputes
Another persistent view in the market is that SARS purposely delays the dispute process by failing to adhere to the timelines as provided for in the Tax Administration Act. This is not something that we have experienced, however, this is something that can be dealt with proficiently if a taxpayer’s advisor is aware of appropriate mechanisms and enjoys a respected working relationship with SARS. Often, a prudent advisor has the ability of finding amicable solutions for both parties to resolve the dispute.
To avoid tax disputes from gathering dust, it’s best to work with a tax advisory service who takes a proactive in approach in bringing disputes to an amicable and timely resolution. Partnering with someone who is aware of the technical and legal points before entering into negotiations with SARS, can help expedite the resolution process and save the client a small fortune in unnecessary fees.