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

3.3.3.3 Failure to apply mind or relevant and irrelevant considerations

The failure by SARS to apply its mind in exercising a discretion in terms of ss 74A and 74B will result in its failure to exercise its public power properly.82 Such transgressions by SARS are also covered by other administrative transgressions, such as the failure to comply with the ‘jurisdictional facts’ of ss 74A and 74B, or the general transgression of acting arbitrarily or capriciously, or mala fide.83

Hoexter84 refers to relevant and irrelevant considerations, fettering, and arbitrary and capricious decision-making as sub-sections of failure to apply mind. Hoexter also refers to s 6 of PAJA as codifying the relevant remedies available to taxpayers aggrieved by SARS’ failure to apply its mind.85

As for what are relevant and irrelevant considerations, Henning J best described these in Bangtoo Bros v National Transport Commission86 as a case of a factor of obvious and paramount importance being relegated to a position of insignificance, while another factor is given weight far in excess of its actual value.

What are relevant considerations in the context of ss 74A and 74B? An example is where the taxpayer has been subjected to a full review by SARS of the same period under review, and no new evidence has been introduced by SARS to suggest additional tax exposure.

What are irrelevant considerations in the context of ss 74A and 74B? The audit and inquiry into the tax affairs of a taxpayer, that is a prominent participant in a particular industry, will send a strong message to similar taxpayers to be more compliant.87

A review by the courts of this function does carry the risk of turning judges into administrators and for this reason alone, reliance on this factor may cause further problems for the taxpayer.88 If SARS fails to apply its mind or takes account of irrelevant considerations, and not relevant ones, the decision would be contrary to the rule of law and would be reviewable as public power being applied in an unlawful manner. Section 6(2)(e)(iii) and (vi) of PAJA would apply, as would the principle of legality.

Next:  3.3.3.4 Unlawful fettering

In accordance with Circular 230 Disclosure

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Footnotes:

76 Hoexter (2012) at pages 310-12; Hani v Rogers NO and Another 20 SATC 296; Adam’s Stores (Pty) Ltd v Charlestown Town Board 1951 (2) SA 508 (N); Bloem v Minister of Law and Order 1987(2) SA 436 (O); Harvey v Umhlatuze Municipality 2011 (1) SA 601 (KZP) atpara’s [136]-[146].
77 Tayob v Ermelo Local Road Transportation Board & another 1951 (4) SA 440 (A) at page 449; Dungarshi Morajee & Co. v Zoutpansberg Rural Licensing Board 1927 T.P.D. at page 993; Ochberg v Cape Town Municipality 1924
C.P.D. at pages 488-9; and for the objects intended by the Legislature: Associated Provincial Picture Houses, Ltd., v Wednesday Corporation [1947] 2 All E.R. 680 at page 682.
78 Britten & others v Pope, 1916 A.D. at page 169.
79 Hoexter (2012) at page 311; Waks v Jacobs 1990(1) SA 913 (T); Hart v Van Niekerk NO 1991(3) SA 689 (W).
80 Haynes v C:SARS 64 SATC 321at page 355.
81 Pharmaceutical Manufacturers Association of South Africa and another: In Re: Ex Parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) at para [50]: What would have been ultra vires under the common
law by reason of a functionary exceeding a statutory power is invalid under the Constitution according to the doctrine of legality. In this respect, at least, constitutional law and common law are intertwined and there can be no difference between them. The same is true of constitutional law and common law in respect of the validity of administrative decisions within the purview of section 24 of the interim Constitution. What is “lawful administrative action”,
“procedurally fair administrative action” justifiable in relation to the reasons given for it, “cannot mean one thing under the Constitution, and another thing under the common law”; Hoexter (2012) at page 254