A trader who ignores the tax obligations of his business can reasonably expect to get into trouble with the authorities.
However, I recently read with great interest of a taxpayer who had not complied in any way with his tax obligations and who challenged the penalties levied against him – with some success!
(Durban Tax Court case VAT 1069, AD CC v The Commissioner SARS.)The taxpayer had taken over the running of his father’s clothing factory in 2005 and had issued invoices upon which VAT was charged for a number of years – but had paid no output VAT to SARS. SARS eventually caught up with him when a client was subjected to an audit and the trail led to invoices issued by the taxpayer’s corporation.
Alerted to the fact that VAT should have been paid, SARS hired an accountant to record and report upon the financial transactions of the corporation.
Upon completion of the investigation, SARS assessed the corporation to tax, penalties and 200% ‘additional tax’ under
Section 60 of the VAT Act. The corporation objected to the levy of the ‘additional tax’ in respect of the years 2007 to 2010. Bear in mind that the appeal was launched in April 2012 and the additional tax was imposed before commencement of the Tax Administration (TA) Act.
The latter had a transitional provision to Section 270 that additional tax, which would have been imposed but for the coming into effect of the TA Act, could be imposed as if the act had not been promulgated. Section 129 of the TA Act, meanwhile, provides that understatement penalties may be increased, reduced or confirmed by the court and the onus is on SARS to prove that the penalty is justified.
Court of the first instance In this case, the judge looked at previous utterances by the Tax Court and concluded that this court has the power to look at the facts afresh. In other words, an appeal to the Tax Court is not the same as an appeal to a higher court where such a court might be reluctant to overturn the decision of the judge in the court below.
A Tax Court is a court of revision. It has the power to investigate the matter before it and call evidence because it is in fact the court of first instance in tax matters.
A partial victory
One of the witnesses for SARS stated that he personally would not have levied the 200% additional tax because the taxpayer concerned had been very co-operative. Also, under the new TA Act, his case would have attracted only 150% additional tax. These and other circumstances were taken into account by the Court, which ruled that additional tax of 100% was just and equitable in its view.
The appeal therefore succeeded, with each party paying its own costs. Although the levy of 100% additional tax is steep, it’s certainly not as bad as the original 200%!