In his recent medium term budget speech Finance Minister Malusi Gigaba announced that a commission tasked with an inquiry into tax administration and governance at the South African Revenue Service (SARS) would be appointed. He also referred to a deterioration in tax morality.

Tax practitioners and others in the know are suggesting that the deteriorating relationship between SARS and the taxpaying public is partly the result of tactics that are currently being employed by SARS in its attempts to meet the R 51 billion shortfall in tax collections estimated for the current year.

Here are some of the reasons identified by tax practitioners:

  • A marked increase in document verifications and / or tax audits.
  • Increased requests for supporting documents to verify the information submitted in tax returns.
  • SARS’ comebacks on tax return submissions used to be about 5% to 10% but have increased to around 50% to 80%.
  • A lot of procedural steps are being added, thereby effectively pushing the burden heavily on to the taxpayer, particularly with regard to taxpayers being able to recover their tax refunds.
  • Tax practitioners find that they face an increasing compliance burden, when interacting with SARS, to defend taxpayers against what they perceive as unsubstantiated allegations.
  • SARS have been stricter with their requests for information than has been in the past – for example a sales invoice for a car – this in addition to a taxpayer’s logbook.
  • The Tax Ombud recently found that SARS unduly delayed tax refunds. In spite of this the situation does not appear to be improving. Delaying processes by SARS include the tactic of requesting supporting documents for VAT periods going back as far as 5 to 7 years!
  • VAT registrations are a particular nightmare.
  • Penalties imposed by SARS are often not defensible. SARS, upon application by the taxpayer to have these penalties waived, then offer a “settlement” figure in the hope that the taxpayer will eventually concede and pay the settlement amount since the cost of a prolonged legal battle with SARS is likely to exceed the settlement amount.

As a result taxpayers often face a triple whammy:

  1. Additional tax costs (including penalties and interest) that do not necessarily have any bearing on the taxable income declared or the timing of the declaration.
  2. Refunds withheld resulting in potential cash flow challenges for the taxpayer.
  3. Additional tax administration costs. Tax practitioners fees are based on time spent. SARS procedural tactics require an inordinate amount of extra processing time. Tax practitioners need to recover these costs from their clients.

We have recently become aware of a trend in requests for a more aggressive approach to assisting clients with their tax planning. Is this evidence of tax immorality or is this merely a response to SARS’ manipulative procedural tactics?