Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 4 – SECTION 195(1) OF THE CONSTITUTION AND PUBLIC ADMINISTRATION DUTIES WITH REFERENCE TO SECTIONS 74A AND 74B

4.2.6 Transparency must be fosteredSection 195(1)(g) of the Constitution states: ‘Transparency must be fostered by providing the public with timely, accessible and accurate information…’.77 This obligation, read with its incorporation into s 4(2) of the SARS Act, also places a constitutional obligation on SARS where the taxpayer has a right to compel performance by SARS.

In the interim Katz Commission Report,78 the Commission recommended:

… that the Revenue Handbooks, and internal memoranda used by assessors in their decision-making process be formulated into documents which are accessible to the taxpaying community and accordingly made public. Furthermore, attention must be given … that in general an awareness on the part of Inland Revenue is created which results in compliance with the Constitution.

The publication of one such Revenue Handbook is the SARS Income Tax Practice Manual.79 SARS has conceded in the past that it is bound by its contents.80 This has also been adjudicated upon by the Courts.81 In ITC 1682 Davis J stated:82

It is clear that the Constitution … has been interpreted by the Constitutional Court in support of a recognition that there are cases where the concept of a legitimate expectation conferring a right to substantive relief may be recognised. There is considerable merit in the recognition of such a doctrine in a case such as the present dispute, where Mr H of the Commissioner’s office acknowledged that the principle [of a salary sacrifice] applied in the circumstances of a similar nature and where a clear unequivocal statement appears in respondent’s own practice manual.(Emphasis supplied)

In the preface to the SARS Income Tax Practice Manual it is stated:

The creation of the South African Revenue Service facilitated the release of its practice in the interests of greater transparency and equity, in line with its new aims to be an improved, more efficient and user-friendly tax collecting authority. (Emphasis supplied)

These references to transparency emphasise the constitutional obligation of SARS to be transparent.

It is for this reason that the SARS Internal Audit Manual should also be made  available to taxpayers. The SARS Internal Audit Manual makes reference to the keeping of assessor records.83 The SARS constitutional obligation of transparency supports the fact that assessor records must be made available to the taxpayers on their request, and this will in turn throw light on some of the reasons why SARS is considering an investigation into the affairs of the taxpayers in question. In support of this submission, the Code of Conduct states: ‘2.6 In dealing with you, we will endeavor to: Respect, protect, promote and fulfill your constitutional rights; … Provide you with timely, accessible and accurate information and feedback…;’ (Emphasis supplied)

Read together with the constitutional obligation of impartiality and unbiased conduct in s 195(1)(d), failure by SARS to apply its ‘transparent’ and publically published undertakings in the SARS Income Tax Practice Manual and the Code of Conduct (read with the SARS Internal Audit Manual)consistently, will be reviewable in the context of an unconstitutional and ‘invalid’ ss 74A and 74B inquiry and audit.

Should a review application be brought in terms of PAJA against SARS for such
unconstitutional and ‘invalid’ conduct, SARS as an ‘institution . . . exercising a public power or performing a public function in terms of any legislation’84 that creates a record in the exercise of that power or performance of that function,85 is obliged, subject to certain limitations, to make the record available to an applicant’.86 At the commencement of Rule 53 review proceedings SARS will have to turn over its internal record to the taxpayer. This proves to be a good opportunity for a taxpayer to determine the level of compliance by SARS with its own internal inquiry and audit guideline, the SARS Internal Audit Manual, with an opportunity for the taxpayer to expose any unconstitutional conduct. This circumvents the complexities attempting to access such information by way of the Promotion of Access to Information Act87that falls outside the scope of this thesis.

Next:  4.2.7 Limitations to s 195(1)

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Footnotes:

77 Transnet Ltd and another v SA Metal Machinery Co (Pty) Ltd [2006] 1 All SA 352 (SCA) at para [55] where the court held that constitutional obligations were central including transparency and accountability in terms of ss 195(1)(f) and (g).
78 Interim Report of the Commission of Inquiry into certain aspects of the Tax structure of South Africa, 18 November 1994; 77 at para 6.3.36.
79 Preiss, M, Silke J, & Zulman R H The Income Tax Practice Manual (November 2012), www.mylexisnexis.co.za.
80 Ibid. B–Procedure Legitimate Expectations at para B26.
81 Ibid.
82 ITC 1682 62 SATC 380 at page 403.
83 See section 3.2: The SARS Internal Audit Manual supra.
84 Section 1(b)(ii) – the definition of ‘public body’ of PAJA.
85 Section 8 of PAJA.
86 Mittal Steel South Africa Ltd (formerly Iscor Ltd) v Hlatshwayo 2007 (1) SA 66 (SCA).
87 Act 2 of 2000. In Alliance Cash and Carry (Pty) Ltd v Commissioner, South African Revenue Service 2002 (1) SA 789 (T) the court held that taxpayers can access information in terms of the Promotion of Access to Information Act from SARS; Croome B & Olivier L Tax Administration 2010 (Juta) at pages 158-72.