The taxpayer sought to review the decision to reject suspension of payment of a disputed tax debt of R1.9 billion and, in doing so, required SARS to produce the complete record underlying its decision in terms of Rule 53 of the Uniform Rules of Court, which governs High Court proceedings and regulates the procedure in cases of review applications.
According to the judgment, the crisp issue before the court was whether Section 68 of the Tax Administration Act, No. 28 of 2011 (“TAA”), is in principle capable of being invoked by SARS to justify withholding documents that would otherwise fall within the Rule 53 record.
The court stated that compliance with Uniform Rule 53 is a substantive, constitutionally entrenched requirement designed to ensure transparency and allow courts to properly scrutinise the exercise of public power.
Accordingly, the court dismissed SARS’s reliance on Section 68 of the TAA, finding that it lacked lawful merit. SARS was ordered to produce a complete record within 10 days of the order.
A R1.9 Billion Tax Dispute
The dispute arose after SARS audited and reassessed the taxpayer in respect of corporate income tax and Value-Added Tax (“VAT”).
The taxpayer’s total tax liability amounted to approximately R1.9 billion, including penalties and interest. The taxpayer subsequently applied for suspension of payment under section 164 of the TAA, which SARS declined in February 2020.
The taxpayer approached the High Court seeking, amongst other things, to review SARS’s decision to decline the suspension of payment, which review created another important question: If a taxpayer is going to challenge SARS’s decision, what exactly formed the basis of that decision?
Rule 53 exists precisely because an applicant cannot properly review an administrative decision while being kept in the dark about the material that informed it.
SARS initially furnished what it contended was the relevant record. The taxpayer disagreed and argued that important documents remained outstanding, including documents and deliberations relating to the SARS committee that considered its suspension of payment application.
This eventually resulted in the taxpayer approaching the High Court to compel SARS to produce the complete record.
You Cannot Challenge a Decision You Cannot See
This is where the judgment becomes particularly important. The High Court recognised that Rule 53 is not simply a procedural formality but performs a constitutionally important function in review proceedings.
A review applicant often does not know exactly what happened inside the administrative decision-making process. That information ordinarily sits with the decision-maker. Without the record, the taxpayer may therefore be required to challenge SARS’s decision with one hand tied behind its back.
The Court emphasised that compliance with Rule 53 is intended to ensure that the substance of a decision is properly placed before the Court early enough for the applicant to understand and potentially supplement its grounds of review. Importantly, the record is not limited merely to documents SARS ultimately considers convenient or relevant.
The Court reiterated the principle that the content of the record is determined by its relevance to the impugned decision, not simply by what the decision-maker elects to disclose. In appropriate circumstances, this includes the deliberations of the decision-maker itself.
That distinction is critical because a taxpayer challenging a SARS decision should not merely be given the final answer. The taxpayer may need access to the information, recommendations and deliberative material that reveal how SARS arrived at that answer.
SARS Relied on Taxpayer Confidentiality
SARS sought to resist disclosure partly by relying on the confidentiality provisions contained in section 68 of the TAA. SARS possesses enormous quantities of confidential taxpayer information and is statutorily required to protect it.
The Court drew an important distinction in respect of the confidentiality regime, and its existence primarily to protect taxpayers from the disclosure of their affairs to outsiders. It should not automatically become a mechanism through which SARS prevents a taxpayer from obtaining information concerning its own affairs, particularly where that information formed part of a decision which the taxpayer is seeking to review.
The Court specifically noted the significance of section 73 of the TAA, which entitles a taxpayer or duly authorised representative to obtain recorded particulars concerning an assessment or decision relating to that taxpayer’s own affairs.
Taxpayer confidentiality is intended to be a shield protecting taxpayers, not a sword SARS can indiscriminately use against them.
Confidentiality is Not the Same as Privilege
Perhaps one of the most useful aspects of the judgment is the Court’s treatment of confidentiality and legal privilege, which are not interchangeable. SARS sought to invoke confidentiality in circumstances where some of the documents concerned its internal processes and deliberations. The Court rejected this blanket approach.
Legal professional privilege, litigation privilege and statutory confidentiality are analytically different concepts. If SARS contends that a particular document is legally privileged, that claim must properly be established. Merely describing material as “confidential” does not automatically make it privileged or immune from disclosure.
The Court noted that SARS had not properly identified and substantiated the privilege allegedly attaching to the documents in question. It held that confidentiality itself was not a basis upon which privilege could simply be established.
This has potentially significant practical consequences, as SARS cannot merely place a blanket of “confidentiality” over its internal records and assume that the enquiry ends there.
What Did the Court Order SARS to Disclose?
The extent of the order illustrates just how seriously the Court regarded the taxpayer’s entitlement to the record. SARS was compelled to produce a complete record pertaining to the impugned decisions, including numerous documents associated with the assessment of the taxpayer’s suspension of payment application.
These included risk analyses, committee documentation, minutes, documents placed before the relevant SARS committee, forensic audit material, debt collection information, management accounts, asset schedules and evidence relied upon by SARS when assessing the taxpayer’s circumstances.
The order also required production of an audio recording or transcript of the SARS committee meeting at which the relevant decision was considered. SARS was further ordered to pay the costs of the application.
Why Suspension of Payment Decisions Matter
Although the judgment concerns Rule 53 and review proceedings, its factual setting is equally important. Under section 164 of the TAA, the existence of a tax dispute does not automatically suspend a taxpayer’s obligation to pay SARS.
A taxpayer may request suspension of payment while an objection or appeal is being determined, but SARS must exercise a discretion in considering that request.
The Court recorded a number of considerations relevant to that exercise, including the taxpayer’s compliance history, the amount of tax involved, the risk of dissipation of assets, whether security can be provided, whether immediate payment would cause irreparable financial hardship, whether sequestration or liquidation is imminent, whether fraud is involved and whether the taxpayer has failed to provide requested information. These are not abstract considerations.
For taxpayers facing a substantial assessment, the difference between a suspension being granted or refused can determine whether they remain commercially operational while an underlying tax dispute runs its course.
A refusal must therefore be capable of proper scrutiny.
SARS Must Be Accountable for How it Exercises Public Power
The broader significance of this judgment extends beyond suspension of payment applications. SARS exercises extensive statutory powers under the TAA. Those powers are necessary for the effective administration of the tax system, but they remain exercises of public power.
Where those decisions are susceptible to judicial review, SARS cannot determine the scope of scrutiny simply by deciding for itself which portions of its decision-making record the taxpayer should be permitted to see. The Court ultimately found that SARS’s interpretation of section 68 inhibited rather than advanced constitutional rights, and that the application should accordingly succeed. That finding encapsulates the broader principle emerging from the case.
The Lesson for Taxpayers
Taxpayers should not assume that SARS’s decision is the end of the enquiry. Where a materially adverse decision has been made, particularly one involving the exercise of a discretion, the underlying reasoning and information considered by SARS may become critically important.
The first question is naturally whether the decision itself is legally and factually sustainable. However, the question of what SARS had before it when it made that decision, is just as important.
This judgment demonstrates why the second question matters.
A taxpayer cannot meaningfully challenge administrative action without access to the material necessary to understand it. Equally, a court cannot properly determine whether SARS exercised its powers lawfully, rationally and fairly if the relevant record remains hidden from view.
SARS has formidable powers to investigate, assess and collect tax. But with those powers comes an equally important obligation: when its decisions are properly brought under judicial scrutiny, SARS must show its hand.
