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Supreme Court of Appeal admonishes SARS

South Africa

The Supreme Court recently reprimanded the South African Revenue Service (SARS) for misconstruing taxpayer records and misleading taxpayers on their rights when subject to audit. Taxand South Africa discusses the case and the admonishment in detail.

During June and July 2003 SARS officials conducted a detailed audit of a taxpayer’s affairs covering the period 2000 to 2004. In concluding the audit SARS issued additional income tax and value-added tax assessments. The taxpayer lodged objections against the various assessments and, having been disallowed by SARS, it then appealed to the Tax Court in Pretoria. Both the taxpayer and SARS were dissatisfied with the decision of the Tax Court and the case proceeded to the Supreme Court of Appeal.

The Supreme Court of Appeal held that in auditing a taxpayer the Commissioner is required to properly consider the documentation provided and to understand that information. It is not sufficient for SARS to merely request information and then disregard it and issue an assessment as it sees fit. The court made the point that where the SARS auditor issues an assessment based on the taxpayer’s accounts and records but has misconstrued those records then it will be sufficient for the taxpayer to explain the nature of SARS’ misconception, point out the flaws in the analysis and to explain how those records and accounts should be properly understood.

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Beric Croome
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Taxand's Take

Taxpayers are entitled to fair administrative action and this includes the conduct of SARS officials in concluding an audit into their affairs. Taxpayers who are subject to an audit by SARS need to be aware of the rights that they have and also the level and standard by which SARS is required to operate under South African fiscal law.

Taxand's Take Author

Beric Croome
South Africa