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 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.3.1 Authority
The exercise of power must be authorised by law. In Fedsure Life Assurance  limited v Greater Johannesburg Transitional Metropolitan Council34 the Constitutional Court stated that it is:

…central to the conception of our constitutional order that the legislature and executive in every sphere are constrained by the principle that they may exercise no power and perform no function beyond that conferred upon them by law.

It follows by analogy from this dictum that SARS does not have inherent powers35 to do as it likes, and that the exercise of public power by SARS must be derived from a lawful empowering source. Sections 74A and 74B, read with s 74 of the Income Tax Act, is such a source, but a source of authority that must be read through the prism of the Constitution and s 4(2) of the SARS Act. In terms of s 41(1)(d) of the Constitution: ‘…administrators…must…not assume power or function except those conferred on them in terms of the Constitution;’. Therefore any decision made by SARS that affects taxpayers, without lawful authority and compliance with the Constitution, is unlawful and ultra vires.36

Lawful authority in terms of s 74B requires that SARS must be able to provide an ‘authorisation letter’ as defined in s 74, if demanded by any taxpayer. Failure by SARS to comply with this requirement would mean that the SARS official concerned would not have the lawful authority to act. Production of the ‘authorisation letter’ does not apply to s 74A, but this does not mean that the SARS official must not be properly authorised to act on behalf of the Commissioner in terms of s 3 of the Income Tax Act.

If SARS makes a decision without the required authority, the decision would be defective and reviewable in terms of the principle of legality, and the codified grounds of review in terms of s 6(2) of PAJA. Section 6(2)(a)(i) of PAJA would apply in that SARS ‘was not authorised to do so by the empowering provision’. The defective conduct would not be authorised by law and would also be unlawful and constitutionally invalid.37 The appropriate Rule 5338 application would be launched by the taxpayer in the High Court, in terms of PAJA, or the principle of legality.

In accordance with Circular 230 Disclosure

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Footnotes

34 1999(1) SA 374 (CC) at para [58].
35 Hoexter (2012) at pages 255-6.
36 Ibid.; In FH Faulding & Co Ltd, The Commissioner of Taxation for the Commonwealth of Australia 94 ATC 4867 the tax authority was held to have exceeded its information gathering powers in making a request for information in circumstances involving offshore information where the section did not entitle them to do so.
37 Such an unlawful or invalid act must be set aside by the courts; See section 4.1 infra and the reference to Oudekraal Estates (Pty) Ltd v City of Cape Town and Others 2004 (6) SA 222 (SCA) para’s [26] – [31].
38 Rule 53, Uniform Rules of Court, GNR 48 of 12 January 1965, made under s 43(2)(a) of the Supreme Court Act 59 of 1959, hereinafter referred to as ‘Rule 53’.