Could challenging Sars cost you more?

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JIMMY MOYAHA: The South African Revenue Service [Sars] is potentially looking to test some of the limits of the Tax Court, and this testing could result in individuals who challenge assessments ending up paying more than they initially envisioned.

For more on this, I’m joined on the line by Webber Wentzel partner Nina Keyser to take a look and see if we can make sense of it.

Nina, lovely having you on the show. Thanks so much for taking the time. Can we start with an understanding of the current process that is in place, and what the specific challenge is, or what these specific tests are looking to focus on?

NINA KEYSER: Good evening. Yes, of course. Firstly, I’m surprised that everyone wants to talk about tax law at this time on a Tuesday evening.

What Sars is trying to do is to shift a position that we’ve always accepted as sacrosanct.

So if you’re unhappy with your tax assessment, you have the right to object. And if you object, that matter can ultimately go to the tax court.

Then one of two things can happen. The court can say you’re right, and then your assessment comes down. Or it can say, look, Sars is always right, this assessment is right – and then it stays the same.

So we’re usually in a position where we say if you fight it can go down, but it can never ever go up.

But the reason for this is also procedural, because by the time a matter comes to tax court, it’s usually more than three years down the line. If Sars thinks your assessment should go up, they should raise an additional assessment within that three-year period.

But by the time we get to court and when a new person at Sars looks at the matter, they think, oh, why did we only raise [only] this? We could have raised more. But if the three-year period has expired, then it’s too late for Sars. So that’s what our current position is.

JIMMY MOYAHA: Nina, what is Sars then proposing becomes the new position? What is it that they are testing in the tax courts now, as it relates to these assessments?

NINA KEYSER: Well, what we’ve been seeing is that they have been trying to reopen prescribed assessments through the back door.

Now that three-year rule that I just spoke about – that Sars can’t raise a new assessment after three years – doesn’t apply if it’s necessary to give effect to a tax-court judgment.

We’ve seen three cases now where Sars has tried and was semi-successful in saying ‘Actually we want the court to increase the assessment that is there’.

The first case where they did that was in that famous ADD case which everybody was talking about, because it was the first surprising assessment that we’ve had go through the courts in South Africa.

There they had an assessment that was raised by one expert in 2015, and then by the time they got to court in 2020 they had a new expert. The new expert said ‘Hey, no, you should have raised a way bigger assessment’.

So Sars [was] saying: ‘Well, okay, it’s too late. But if the court orders it, or it’s necessary to give effect to a court judgment, then we can do it.’

So they asked the court if [they] could raise a higher assessment.

Fortunately for us, that hasn’t worked so far, because the court didn’t like Sars’s expert and found in favour of the taxpayer. But that was on appeal.

So we’re really watching closely to see whether a higher court, like the Supreme Court of Appeal or the Constitutional Court, would say ‘I’m actually going to give an order that this assessment must be higher’ – and that would be devastating.

JIMMY MOYAHA: Nina, can we look at those devastating impacts on those challenged assessments? We know that in principle it could mean that individuals could be liable for more, but I imagine it goes a little bit deeper than that. Can you take us through some of the potential implications if Sars comes out of this that way, or if Sars on the other side of this conversation ends up with the result they’re hoping for?

NINA KEYSER: I think it goes to the fundamental rights of taxpayers.

There are two fundamental rights here. The one is that we are entitled to certainty.

So if you file your tax returns correctly and you’re honest with Sars and you don’t make any misrepresentations and Sars assesses you, they have three years to change that if they think the first assessment was wrong. So the three-year rule gives us certainty.

If Sars can get in [through] the back door, it means that we will never have certainty. If we raise a dispute, then Sars will have a back door to reopen assessments that would otherwise have prescribed.

The other fundamental right of a taxpayer is if you’re unhappy with an assessment, you must be able to go to Sars – and this is in Sars’s taxpayer charter – and say ‘I disagree with this assessment’.

You have the right to object. If that doesn’t work, you can take the matter to court and so on.

You must be able to do that, otherwise Sars can just bully you, effectively. So if Sars is in a position where they say ‘Well, if you dispute this then I’m going to reopen stuff that has already prescribed, and I’m going to ask the court to raise a higher assessment’, then that makes it so much more difficult for taxpayers to dispute an assessment that they disagree with, with Sars.

JIMMY MOYAHA: Now, Nina, for now we are looking very specifically at transactions that taxpayers have already been assessed on – and we’re not necessarily looking at other technicalities like taxpayers who may have misrepresented numbers or may have submitted incorrect numbers for assessment to Sars.

Can we take a look at whether, as it stands, South African consumers, and taxpayers in particular, have the ability to weigh in on this process?

I imagine, given that it does affect any or all South Africans, we would want to be able to share our thoughts, share our opinions. Is there currently [anything] that might allow for that, at least in the Tax Court’s eyes – or while we’re waiting for these processes to be reviewed?

NINA KEYSER: Look, normally there’s the Office of the Tax Ombud, and the Tax Ombud is there to protect taxpayers’ procedural rights.

But unfortunately [the ombud’s] jurisdiction doesn’t extend to matters that are before court. So to the extent that a matter is already in that court process, the Tax Ombud is not going to intervene.

Although your procedural rights are supposed to be protected by the Tax Ombud, they are going to be limited to things where Sars doesn’t come back to you, or they don’t meet their deadlines and – that kind of a thing.

So it’s going to be up to litigants to push this issue with Sars.

I had an experience at the end of last year where, after hours of negotiation with the revenue service, they said ‘Well, this assessment is wrong’.

I said ‘Well, okay, withdraw your case’. The reply was ‘No we’re going to court anyway’.

So it is almost as if you’re then sitting in a position where Sars is pushing – and litigants really, really need to push back as hard as they can to ultimately get a judgment from one of our higher courts that says ‘Sars, this is not allowable’. We are all pushing for that.

The only other avenue the public – or tax practitioner members, et cetera – could have to approach this is to go via the finance committee in parliament or National Treasury and maybe make representations to the finance minister.

But we’re definitely watching this closely to see where it’s going to go.

And if we pick up more of these cases as we go along, certainly something that we would want to do is to go to National Treasury and say, look, please just make it clear in the law that Sars can’t increase an assessment or go back more than three years if [a taxpayer] wants to dispute, saying their assessment is wrong.

JIMMY MOYAHA: We’ll see how this shapes up, especially given that it does have such a significant impact on a taxpayer in South Africa.

We’ll leave the conversation on that note. Thanks so much to Nina Keyser, a partner at Webber Wentzel, for joining us to look at whether challenging your Sars assessment could cost you more.

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