For years accountants in practice have complained that SA Revenue Services was over-stepping its powers by unreasonably demanding realms of documentation related to expense claims. Sars commissioner Edward Kieswetter has gone a long way to remedy this perception and must be applauded for that.
Yet it seems the Sars enforcement division has some way to go to to live up to the standard that Kieswetter has set for the organisation. “We hear from accountants in practice that when tax returns are submitted, Sars enforcement unit automatically issues a notice for audit, demanding proof of ALL expenses, whereas in the past they used a risk approach and did a sample test. The feeling is that this is now happening indiscriminately,” says Nicolaas van Wyk, CEO of SA Institute of Business Accountants (Saiba).
Requiring proof of all invoices is a huge administrative burden on small businesses. In practical terms, it means businesses are required to make copies of all invoices, which can amount to tens of thousands of copies for some businesses. All of this must then be scanned and emailed to Sars.
There are instances where Sars enforcement arm finds one payment that does not have a supporting invoice, and on this basis rejects ALL expenses. “We hope Commissioner Kieswetter is able to capacitate the Sars enforcement division so as not to place too heavy a burden on taxpayers in difficult economic times,” says van Wyk.
“We hear from several accountants in practice that the costs of having to provide such an extensive amount of documentation is becoming a huge burden on clients, especially in terms of admin costs,” adds van Wyk. “This, then, becomes a burden on accounting firms. Due to the workload of copying all the invoices for all their clients, accounting firms are now having to downscale as the Sars admin burden is crowding out their ability to provide value-adding services.”
The complaint from accountants – who do not want to be named – is that Sars enforcement unit is overbroad and general in their rejection of claimed expenses. They point out that the law requires the tax agency to be specific in its demands for documentary proof, rather than making a general statement of rejection.”
The lack of procedural certainty and deliberate vagueness has the effect of forcing small business to surrender rather than go through the cost and stress of exercising legitimate claims for expenses.
Sars enforcement unit has an abundance of powerful tools at its disposal to can easily be abused to force taxpayers into giving up even though they may be legally correct in claiming expenses.
Says van Wyk: “It may be that as a result of the previous administration’s culling of skills and competencies that the enforcement unit is choosing the easy route by asking everything, without realising the damage this may cause to the economy as all resources are allocated to admin and making copies, rather than creating economic value.
“Administration can be used as an effective tool by stronger powers to prevent SMEs from reducing their tax bill by legal means. We would like to see Sars’ enforcement division applying a more even-handed approach to smaller businesses which are making allowable claims under the law.”
Keith Engel, CEO of the SA Institute of Tax Professionals (Sait), says there may be instances of over-reach when it comes to claiming rental and home office expenses, particularly where this involves salaried workers with residential properties. “When SARS asks for information, you have to provide everything in the format it wants, but in many instances it does not specify what format is required. Oftentimes they wear you down with requests for additional documentation and it begins to feel like a fishing expedition.”
Nico Theron of Unicus Tax Specialists, and currently authoring a book entitled Tax Dispute Resolution, says he is likewise aware of cases where Sars over-steps its powers, “often on purpose, often out of ignorance.”
“Taxpayers can fight Sars, but this can be difficult and expensive, as Sars will often be difficult in the type of information it requires. For example, it may want you to provide copies of a loan agreement when there may not be one in writing.”
Accounting Weekly has asked Sars for comment and will update this story when it receives a reply.