In a matter heard by the Tax Appeal Court (VAT case No 795) in which judgement was delivered on 3 May 2013, we see how even a SARS ‘error’ can result in an ‘innocent’ taxpayer being ‘penalised’. The appeal arose because of an audit conducted by SARS during 2003 in which VAT was levied on one entity where the VAT should have been split between two entities.
The taxpayer’s counsel made it clear that the appeal was against the assessment itself, and not against additional tax, penalties and interest. SARS conceded the point that the VAT should have been split, but the ‘innocent’ taxpayer had made a few serious errors in dealing with the situation.
Firstly, he mistakenly wrote to SARS when the dispute first arose, saying he agreed with the turnover figures. Secondly, and possibly related to the first mistake, the necessary dispute resolution forms completed by the taxpayer did not specifically make mention of the fact that the capital amount had been incorrectly calculated due to an SARS mistake. Thus the argument in court and the SARS forms for the noting of objections and appeals were inconsistent.
The mistakes were never rectified. After the passing of time, this resulted in the assessment becoming final, at least as far as the capital amount was concerned. Prior to the hearing in the Tax Appeal Court, the preliminary point regarding the interpretation of the rules with respect to appeals was heard in the Tax Court (in 2010). Here, the court held that the issues before it must be limited to those set out in the ‘pleadings’.
This, it was held, also protects the taxpayer from ‘trial by ambush’ (by suddenly being presented with a welter of new claims). SARS and the taxpayer could, however, raise new issues in the pre-trial statement – but this had not been done by the taxpayer. The Supreme Court of Appeal upheld this decision. In the Tax Appeal Court, the taxpayer contended that Section 33 of the VAT Act empowers the court to alter a SARS assessment.
In the face of the Supreme Court of Appeal ruling, the Tax Appeal Court held that it could not use the section to alter the assessment, which had become final due to the passing of time and the non-objection to the capital amount charged by SARS. So, after a number of outings to court, the taxpayer had to swallow the bitter pill of defeat. Victory was there for the taking, but for the failure to object in full.
The lessons to be learnt from this case are as follows:
- Treat SARS assessments very seriously and get a lawyer involved. Dispute resolution is the domain of the lawyer, not the accountant.
- Treat timelines with great respect.
- Follow the rules.
We are fortunate in SA to have a solid judiciary. SARS is also very fair with regard to its rules and procedures. Complaints abound, but compared with other countries we are well off. We simply have to play by the rules.
Peter O’Halloran is head of tax at BDO, Gaborone. Phone him on 00267 390 2779