Taxpayer objections were incorrectly invalidated by SARS
The Office of the Tax Ombud (OTO) provides an independent platform for taxpayers to resolve disputes with the South African Revenue Service (SARS). In a recent case, a taxpayer's objection to an additional tax assessment was wrongly invalidated by SARS. The OTO's intervention led to a reconsideration, significantly reducing the taxpayer's liability, and demonstrating the OTO's impact on ensuring fair treatment in the tax system.
The dispute between a taxpayer and the SARS was regarding an additional income tax assessment for 2023. The taxpayer had filed an objection on 29 August 2023, against the assessment, claiming an exemption under section 10(1)(o)(ii) of the Income Tax Act, 58 of 1962. This section allows exemptions for income related to services rendered outside South Africa.
SARS' Actions:
Upon receiving the objection, SARS requested additional documentation on 11 September, which the taxpayer provided by 15 September 2023.
SARS invalidated the objection on 2 October 2023, without considering the supporting documents submitted by the taxpayer providing the following reason:
“In order to qualify for the exemption in terms of section 10(1)(o) of the Act, the taxpayer must be outside the RSA for a period exceeding 183 full days in aggregate during any 12-month period and for a continuous period exceeding 60 full days during such period of 12 months”
SARS further indicated that:
“A new Notice of Objection may be submitted within 20 business days from the date of this letter.”
Taking this step, SARS effectively stopped the taxpayer from lodging an appeal against the decision.
Tax Ombud’s Intervention
The taxpayer lodged a complaint with the Office of the Tax Ombud (OTO) on 9 October 2023. The OTO accepted the complaint and recommended that SARS withdraw the invalidation and properly consider the objection.
The OTO highlighted that SARS’ invalidation was not in line with dispute resolution rules. This was the case as SARS is not permitted to invalidate an objection based on a disagreement with the taxpayer’s grounds but only for procedural reasons.
Resolution
Following the OTO’s recommendation, SARS reconsidered the objection, allowed the dispute, and issued a reduced assessment on 3 November 2023. This action reduced the taxpayer’s liability by over R500,000.
What taxpayers and tax practitioners need to know
This case highlights the importance of adhering to proper procedures in tax disputes. The following lessons are key:
Understanding Procedural Rights: SARS cannot invalidate a taxpayer's objection just because it disagrees with the reasons for the objection. If SARS asks for more documents, it must review them before making a decision. However, SARS can reject an objection if, for example, the taxpayer didn't fully complete the objection form.
Correct Dispute Resolution Process: Tax professionals should guide clients on what to do if their objections are wrongly invalidated. The OTO is an important resource for taxpayers when SARS doesn’t follow the proper procedures.
Timeliness and Attention to Detail: It’s crucial to respond quickly to SARS requests and ensure all documentation is thorough and complete. Promptly submitting all necessary documents helps avoid unnecessary disputes.
Ethical Responsibility: Tax professionals have a duty to protect their clients' rights and ensure they are treated fairly by SARS. This includes challenging incorrect actions through the proper channels.
Overall, this case illustrates the necessity for accountants to be vigilant, informed, and proactive in managing tax disputes, ensuring that their clients' legal rights are upheld throughout the process.
Read more in the OTO’s publication Fairness for All case 28.
