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SARS: Power to Request Information to Identify Taxpayers
Specifically, this article investigates a request by SARS for information, and not to an audit or inquiry from SARS. In terms of the SARS Short Guide to the Administration Act, 2011 ("SARS Guide"), a request by SARS for relevant material is not limited to a formal audit or investigation, but may be utilised for any purpose related to the administration of a tax Act. Taxand South Africa considers the impact of the recently effective Tax Administration Act 28 of 2011 ("TAA") on the scope of SARS information-gathering powers and what relief is available to taxpayers.
Income Tax Act
Previously, SARS' power to request information from a taxpayer was set out in section 74A of the Income Tax Act 58 of 1962 ("Act"). The Act empowered the Commissioner to request that a taxpayer or any other person to provide information (whether orally or in writing) where the Commissioner may require it, for the purposes of "the administration of this Act" in relation to a given taxpayer.
The term "administration of this Act" was relatively widely defined in section 74(1) of the Act. However, based on the wording of section 74A, it was arguable that a person did not have to provide information to SARS where the information requested (for the purposes of the administration of the Act) was not in relation to an identified taxpayer.
Tax Administration Act
As of 1 October 2012, the provisions of the TAA govern SARS' powers to request that a taxpayer provide information. In particular, Chapter 5 (sections 40 to 66), governs the process of SARS' "Information Gathering".
In terms of the SARS Guide, SARS' information gathering powers are supplemented or extended by the TAA. However, the SARS Guide also states that the taxpayer's rights are amplified and made more explicit, to counterbalance SARS' new information gathering powers.
In terms of section 40 of the TAA, SARS may select a person for, inter alia, inspection, on the basis of any consideration relevant for the proper administration of a tax Act.
SARS' general power to request information is now contained in section 46(1) of the TAA, which states that:
"SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires".
The term "administration of a tax Act" is even more widely defined under the provisions of the TAA (section 1, read with section 3(2)) than the term "administration of this Act" contained in section 74(1) of the Act. For example, SARS now has the power to request information specifically to enable it to identify a person for purposes of determining liability for tax. In addition, SARS now also has the power to request information so as to obtain full information in relation to a "taxable event", which term is defined in section 1 of the TAA as an occurrence which affects or may affect the liability of a person to tax.
There do not appear to be many restrictions in relation to SARS' extensive information-gathering powers granted in the TAA except for section 46(3) of the TAA, which states that a request by SARS for relevant material from a person other than the taxpayer is limited to relevant information related to the records maintained, or, that should reasonably be maintained by the person in relation to the taxpayer section 46(6) of the TAA, which states that relevant material required by SARS under section 46 of the TAA must be referred to in SARS' request with reasonable specificity.
However, although the relevant provisions in the TAA extend SARS' information-gathering powers significantly, and do not impose many restrictions on SARS' exercise of such powers, this does not mean that a taxpayer is powerless in the face of an unreasonable exercise of these powers by SARS. In such a scenario, the taxpayer can challenge SARS' actions under the Promotion of Administrative Justice Act No. 3 of 2000 ("PAJA").
This is confirmed in the SARS Guide (at page 9) which specifically states that:
"The concerns that SARS officials will act unreasonably, unless TAAct requires them to act reasonably...are incorrect as PAJA applies in any event. The Constitutional Court has held that all statutes that authorise administrative action must now be read together with PAJA unless the provisions of the statutes in question are inconsistent with PAJA.
It is, therefore, not necessary for TAAct itself to spell out all the relevant aspects of administrative justice. This is implicit given the overriding application of PAJA, under which the unreasonable exercise of a power or performance of a function is a ground for review."
The SARS Guide carries on to state that "in certain impactful provisions of the TAA, administrative fairness provisions have been codified". However, the provisions dealing with requests by SARS for information do not appear to fall within this category of "impactful provisions".
It is important that a taxpayer remains aware of what information or documents he or she has that are protected by professional legal privilege, as this typically permits him or her to withhold such information or documentation from SARS. Currently, legal professional privilege only applies to communications between a professional legal advisor and his or her client.
In terms of Government, Gazette Notice No. 51 contained in Government Gazette No. 35687 dated 14 September 2012, the TAA commenced on 1 October 2012 save for certain provisions. None of the excluded provisions fall within Chapter 5 of the TAA and therefore the provisions discussed above are all applicable as from 01 October 2012.