An inordinate delay in finalising a tax dispute can have a severely prejudicial effect on a taxpayer who is obliged to pay first and argue later. The recent decision by the Tax Court in F Taxpayer v The Commissioner for the South African Revenue Service[1] has shown that the courts will be loathe to condone excessive delays by the South African Revenue Service (the “SARS”) during the dispute resolution process.
In F Taxpayer the Tax Court was confronted with whether to condone a pattern of delays by the SARS, and secondly, whether to instead grant the taxpayer’s application for final relief by default in terms of the rules issued in terms of the Tax Administration Act, 28 of 2011 (the “TAA” and the “Rules” respectively). The court in dismissing the SARS’ application for condonation and upholding the taxpayer’s application for final relief by default held:
Put simply, the evidence shows that in the present case SARS has failed dismally to fulfil its obligations, both under s 195 of the Constitution as well as the TAA and its rules. It has displayed an egregious lack of regard for the taxpayer’s constitutionally entrenched right to fair administrative action …
Background
The facts in this case paint a picture of the SARS’ repeated non-compliance with the Rules.
After the SARS conducted an audit of the tax affairs of the taxpayer, it issued additional assessments for the 2016-2018 years of assessment. The taxpayer disputed these assessments.
Throughout the dispute resolution process the SARS failed to comply with the time periods stipulated in the Rules and either belatedly requested an extension to deliver a document or make a decision or simply failed to act within the time periods prescribed for such action. Insofar as any reasons were provided for the delays, these were either unreasonable or untruthful.
The SARS inter alia:
- missed the deadline to provide reasons to the taxpayer;
- failed to take a decision on the taxpayer’s objection until the taxpayer threatened litigation; and
- failed to deliver its rule 31 statement until the taxpayer threatened litigation and even after the taxpayer had granted it an extension to deliver such statement.
After the SARS missed the deadline granted by the taxpayer pertaining to its rule 31 statement and requested another extension, the taxpayer refused and launched their application for a final order upholding the taxpayer’s appeal against the additional assessments.
The SARS launched a counter-application requesting condonation for its delay in delivering its rule 31 statement.
Reasons for the decision
The court held that the SARS had shown a “persistent disregard for the time limits prescribed in the rules” and ultimately dismissed the SARS’ application for condonation. In support of this contention, the court drew on many actions by the SARS including the fact that:
- the SARS failed to seek extensions within the prescribed time limits;
- the SARS’ failure to provide any explanations for most of its delays;
- when explanations were provided for its delays these were inadequate and generalised (such as referencing the impact on Covid-19, a lack of capacity and lack of filling of vacancies across the SARS); and
- the misrepresentations to the taxpayers on many occasions (including that counsel had been briefed when this was yet to occur).
In addition, the court noted that the necessary information to prepare the rule 31 statement was available to the SARS long before the expiry of the stipulated period. At each stage of the process, such as the SARS’ audit of the taxpayer, the SARS providing reasons and the SARS partially disallowing the taxpayers objections, the relevant officials should have applied their minds to the available information, in combination with their understanding of the relevant statutory provisions.
The court emphasised the severe prejudice that had been suffered by the taxpayer, especially as it was vital for the taxpayer’s business to be reflected as tax compliant on the SARS e-filing system. In spite of this, the SARS continually erroneously changed the taxpayer’s tax compliance status to non-compliant without relying on any valid grounds to do so.
The court also considered the merits of the matter to determine whether the SARS’ prospects of success weighted in favour of granting condonation. However, the court concluded that the taxpayer’s case had sufficient merit to enable the court to grant final relief.
To justify condonation and explain the delay, the SARS argued that the delay was not unreasonable, and even if it was, this was justified on the basis that the matter raised extremely technical issues of public importance which required proper debate and discussion.
The court ultimately decided against the granting of condonation primarily on the basis that the delay was “egregious”, there was no reasonable explanation for the delay and the consequent severe prejudice to the taxpayer.
The court accordingly granted final relief to the taxpayer and allowed the appeal by the taxpayer against the additional assessments by default against the SARS. This meant that the taxpayer was successful in overturning the additional assessments issued by the SARS without a full hearing on the merits.
Conclusion
This case illustrates the courts’ willingness to take a hard line against the SARS’ non-compliance with the TAA and its Rules and grant default judgement in favour of a taxpayer without a full hearing on the merits.
It is clear that the courts will be loathe to accommodate the SARS when it disregards its statutory obligations and a taxpayer’s rights to procedural fairness.
This bulletin was prepared by partner Conor McFadden, associate Johan Coertze and candidate attorney Hadassah Laing.
[1] (IT 45842) [2022] ZATC 1
