Tax Administration

Question 1

What are the features of “tax” as established in the Nyambirai v National Social Security Authority?

Answer 1

1. Its a compulsory and not optional contribution
2. imposed by the legislature or other competent public authority
3. upon the public as a whole or a substantial sector thereof
4. the revenue from which is to be utilized for the public benefit and to provide a service in the public interest

Question 2

What does section 228 and 229 of the Constitution do?

Answer 2

Section 228: empowers a province to impose taxes. levies and duties
Section 229: empowers municipalities to impose rates on property, surcharges on fees for services provided by or on behalf of municipality etc.

Question 3

When will a bill be a money bill? make reference to section 77(1) of the Constitution

Answer 3

a. When it appropriates money
b. imposes national taxes, levies, duties or surcharges
c. abolishes or reduces or grants exemptions from any national taxes, levies, duties or surcharges
d. authorizes direct charges against the NRF

Question 4

What happened in SA Reserve Bank v Shuttleworth?

Answer 4

This case dealt with exchange control and a exit charge that had to be paid by Shuttleworth if he wanted to leave the country. 10% of his capital had to be paid.

Shuttleworth’s legal team then said that this charge was actually a tax which was imposed unlawfully as it didn’t follow the correct implementation procedure. They said it was a tax because the state was generating revenue for itself.

The state argued that it was a regulatory charge to control conduct: that conduct being to prevent people from taking out their capital and moving to another country

Court:
1. Firstly emphasis the importance of tax and the right the government has to take tax.
2. Says that if the revenue that is raised is aimed at regulating conduct = its a charge or a levy. If the revenue that is generated is solely to raise revenue for the state = tax.
3. You have to look at the dominant intention of the statue from which the revenue arises. If the dominant purpose is to raise revenue then its a tax and its subject to the procedure set out in section 77 of the Constitution if its not a tx, its not subject to section 77.

Factors listed in Shuttleworth:
1. Money paid into general revenue fund for general purposes (indictive of it being a tax)
2. No specific service in return for payment (tax)
3. Purpose is to punish (not tax)
4. Subject to country’s general machineries of assessment and collection (E.g if SARS is involved) - tax
5. Words used (e.g “fee”) - not tax
6. Not imposed on public as a whole or on substantial part - not tax
7. Charge used to defray administrative costs (not for public benefit) - not tax
8. Purpose to ensure constant stream of revenue for state - tax

Outcome:
Court found the exit charge to be charge because the purpose was to regulate conduct therefore the fact that the money bill process was not followed was irrelevant

Question 5

What happened in Casino Association of South Africa v Member of the Executive Council for Economic Development?

Answer 5

MEC imposed a gaming levy in terms of the North West Gambling Act via amending a regulation. Problem: Did the Minister have the power to charge a gaming levy?

Applicant: dominant purpose is to raise revenue therefore its a tax
MEC: Not a tax, but a regulatory measure

Court:
1. Refers to Shuttleworth: look at dominant purpose of the Act, statue, regulation etc.
2. This court goes on to add another tool: look to see if there is a link between the dominant purpose of the statute and the purpose of the charge itself

Outcome:
1. Court confirmed that the dominant purpose of the Gambling Act and the Regulation was to regulate gambling in the province
2. However, even though the NW Gambling Act was regulatory in nature, the court concluded that the funds collected through the levy was paid into the provincial revenue fund where it was used for general purposes which enabled the province to deliver services

Therefore, on this basis the court found that even though the Act was regulatory - the gambling levy was a tax and invalidly imposed because it did not comply with section 228 of the Constitution.

Question 6

Is Tax a deprivation of property?

Answer 6

No. In First National Bank of SA v C:SARS and other additional case law it was confirmed and stated that “Tax is not a deprivation of property, nor is it expropriation”

Question 7

What rule does Section 164 of the TAA refer to and is it constitutional?

Answer 7

Section 164 of the TAA refers to the “Pay now, argue later” rule. Which basically just means that if the tax payer objects to an assessment they still have to pay the sum of money that SARS alleges they have to pay. If SARS is wrong, they will pay you back with interest.

This rule basically is there to ensure that the tax payer does not use the dispute of an assessment as a delay tactic to buy more time to pay and its constitutionality was challenged in the CC but it was ultimately held not to be unconstitutional as it does not limit your access to court or preclude you from approaching a court.

Question 8

What are the main classification of taxes and give an example of each

Answer 8

1. Income (e.g income tax)
2. Consumption - the taxation of goods and services (e.g VAT)
3. Wealth - the taxation of property or capital (e.g capital gains tax)

Question 9

What is the difference between a proportional vs progressive rate?

Answer 9

Proportional:
this basically means that there is a flat rate that is charged across the board (e.g corporate income tax rate of 27%)
However the argument is that the effect of a flat rate from the outside seems to achieve equality as it applies to everyone equally for example 15% VAT. However in reality this flat rate would have a greater impact on low income individuals which means equality is not actually being achieved.

Progressive:
Tax increases as your income increases

Question 10

What is the difference between direct and indirect taxes and provide an example of each

Answer 10

Direct: taxes that are levied on a person (e.g personal income tax)
Indirect: taxes that are imposed on transactions (e.g VAT)

Question 11

What is the role of taxation?

Answer 11

1. Revenue - to finance government activities
2. Redistribution of resources
3. Economic growth
4. Reprising - when the government tries to encourage or discourage certain behavior by using certain taxes

Question 12

Explain and discuss Adam Smith’s criteria for a good tax system

Answer 12

1. Equality:
   Equality both horizontally and vertically. Tax burden should be distributed fairly and equally and should be associated with your ability to pay.
   Horizontal - if we are in the same position we should be treated the same.
   Vertical - In different circumstances we should be treated differently
2. Certainty:
   Rules must be clear and certain and decisions should not be made arbitrarily
3. Convenience:
   Make it easy to interact with authorities - file tax returns get refunds etc
4. Cost-effective and economically efficient:
   As a T.P your compliance cost must be considered - how much does it cost to make sure your tax is in order/ compliant with legislation. However, Adam Smith says you shouldn’t make business decisions based on the tax consequences of those decisions
5. Flexibility:
   Tax system should be flexible (technological advancements)
6. Simplicity:
   In an ideal world, you should be able to understand the tax system

Question 13

What was said in the Natal Joint Municipal Pension Fund v Endumeni?

Answer 13

1. The court emphasized the importance of interpretation of statutes when it comes to tax law.
2. Said don’t just look at dominant impression (shuttleworth) but also give importance to context, language, purpose and the material used known to those responsible for its production
3. if more than one meaning can be construed then weigh up considering factors and choose most sensible meaning

Question 14

What are the important factors re interpretation mentioned in Minister of Police v Fidelity Security Services?

Answer 14

1. Words should be given its ordinary grammatical meaning unless to do so would result in absurdity
2. The statute must be interpreted purposively, properly contextualized and consistently construed with the Constitution to preserve its constitutional validity
3. In the case of ambiguity, interpret the statue to mean something constitutionally valid but be careful not to overstep
4. Statute should be interpreted to avoid a gap in the legislative scheme

Question 15

What happened in the Diago SA Ltd v Commissioner of SARS?

Answer 15

The vanilla case. A specific tariff could be applied if you used non-alcoholic ingredients to add to alcoholic ingredients.

Vanilla has alcohol in it therefore this specific tariff couldn’t be applied.

Question 16

What are the presumptions in Tax Law re interpretation of statutes?

Answer 16

1. The same words and phrases in a statute bare the same meaning
2. Contra fiscum rule
3. Presumption against double taxation

Question 17

Is SARS interpretation notes binding?

Answer 17

No. In Marshell v C:SARS the court held that interpretation notes can be helpful to a tax payer to understand certain thing but they are not binding on courts and SARS cannot refer to them as evidence

Question 18

What does “practice generally prevailing” refer to?

Answer 18

C:SARS v Medtronic International Trading:
SARS contended that it was not bound by interpretation note 61. Practice generally prevailing means “a practice set out in an official publication regarding the interpretation or application of a tax act”
official publication includes an interpretation note

In this case SARS assessed a person who was in conflict with what was said in an interpretation note. SCA said that this was ill-conceived.

Outcome:
If SARS asses you in line with an interpretation note which is in line with a practice generally prevailing - they cannot later change their minds and cannot issue an additional assessment later on.

Question 19

What is the purpose of Section 2 of the TAA?

Answer 19

To ensure the effective and efficient collection of tax

Question 20

Briefly discuss the life cycle of a tax payer

Answer 20

1. You register to become a tax payer
2. You have an obligation to send a return to SARS
3. SARS assess you and sends you a notice of assessment which states how much you allegedly owe SARS
4. Tax liability, payment, recovery
5. Reasons for assessment
6. Objection
7. Appeal against assessment (if objection is disallowed)

Question 21

What are the two categories of confidential information

Answer 21

1. Tax payer confidential information
2. SARS confidential information

Question 22

What are the exceptions to disclosing SARS information?

Answer 22

1. Public information
2. Authorized by commissioner
3. Disclosure authorized expressly by another Act
4. Access granted in terms of PAIA
5. High Court order

Question 23

What are the exceptions to disclosing tax payer information?

Answer 23

1. They committed or is suspected of committing a tax offence
2. Disclosure authorized by another Act
3. High Court order
4. Information is public information
5. Written Consent given by Tax payer
6. Disclosure i.t.o section 69(8) of the TAA - SARS to other agencies
7. Disclosure i.t.o section 67(5) of TAA - T.P lied and SARS allowed to introduce evidence by referring to T.P information to rebut allegations but must give T.P 24hrs notice
8. Disclosure i.t.o section 71 of TAA: has to be ordered by a judge. Information may be disclosed where it will reveal:
9. an offence
   2, info relevant to investigating or prosecution of offence
10. info revels imminent and serous public safety or environmental risk

Question 24

What is the significance of the Arena Holdings v SARS case?

Answer 24

added an additional paragraph called “(bA)” to section 69(2)(b) of the TAA. You have to read in “(bA) where access has been granted for the disclosure of info in terms of the Promotion of Access to Information Act 2 of 2000”

Question 25

What did Welz v Hall hold?

Answer 25

Defamation case where the person being sued had to prove that the statements they made were true and for the public benefit but in order to do so they had to get certain information from SARS regarding the T.P - court didn’t allow this.

The rationale for keeping tax payer information is because:
1. To encourage the T.P to make full disclosures about their affairs
2. To avoid disruptions in the revenue office

However, this judgment was criticized by the CC as it held that there is no basis that absolute confidentiality is required to get tax-payer compliance.

Question 26

Discuss Public Protector v Commissioner of SARS

Answer 26

AKA the Zuma case.
This case was about the P.P’s power to subpoena i.t.o the Public Protector Act vs Confidentiality of T.P information i.t.o the TAA.

P.P was investigating Zuma and payments made to him and subpoenaed SARS to come and provide information. Court found there was no exception in the TAA that allowed for T.P information to be disclosed to the P.P and therefore the appeal was dismissed. Court said that P.P should rather have brought an unconstitutionality challenge against the TAA for excluding P.P in exceptions and work via that route.

Question 27

Discuss Arena Holdings case i.t.o secrecy and confidentiality

Answer 27

Information was disclosed in a book called “The Presidents Keeper”
Media argument: if you read TAA and PAIA there’s no public interest exception to secrecy. goes against right to access to info and freedom of expression

PAIA section 35: Mandatory protection of T.P info
PAIA section 46: Mandatory disclosure if in the public interest

Outcome:
HC found section 46 of PAIA to be unconstitutional and that S35 must be read into S46.

Majority:
Read s35 of PAIA into section 46 public interest override
Read new exception into section 60(2) of the TAA

Question 28

What are the different assessment types

Answer 28

1. Original assessment
2. Additional assessment
3. Reduced assessment
4. Jeopardy assessment

Question 29

What are the period of limitations?

Answer 29

1. SARS only has 3 years to reconsider the original assessment to decide if they want to audit you - an assessment cannot be reopened after 3 years unless there was fraud, misrepresentation or non-disclosure
2. If you owe SARS - the debt only prescribes after 30 years

Question 30

What are the steps after the assessment?

Answer 30

1. TP liable for payment
2. SARS has powers to collect/recover tax
3. Compromise/write off tax debt
4. TP can dispute the assessment

Question 31

Process of objection and appeal

Answer 31

1. TP requests reasons after assessment
2. TP objects
3. If SARS disallows objection - TP sends a notice of appeal
4. TP must decided if they want to do ADR
5. if not satisfied with the outcome TP appeals to tax board
6. If not satisfied TP can appeal to Tax Court
7. If not satisfied TP can appeal to the HC or SCA
8. TP can also apply to CC as last resort

Question 32

What is the jurisdiction and Constitution of the Tax Board

Answer 32

Jurisdiction: Max 1mil of tax in dispute (s109 TAA)
Constitution: Chairperson = legal practioner, accountant and member of commercial community

Not open to the public and decisions are not published
Does not set precedent but is binding on SARS and TP unless appealed to Tax Court

Question 33

What is the jurisdiction and Constitution of the Tax Court

Answer 33

Jurisdiction: Can only hear cases in two instances

1. Directly after objection was disallowed by SARS (can only be brought by TP)
2. From the Tax Board (Can be brought by TP or SARS)

Constitution: judge, accountant and commercial member

Not open to the public but decisions are published and does not create precedent

court of record

Question 34

What if a decision by SARS is not subject to objection and appeal?

Answer 34

Other decisions can be taken to the HC either on the basis of:
1. PAJA review if A.A is not lawful, reasonable and procedurally fair
2. Review based on the principle of legality

Question 35

Can a TP skip the internal remedies and go straight to the HC?

Answer 35

Commissioner SARS v Rappa

Yes, IF THE COURT GRANTS IT. The default rule is that the TP may only dispute an assessment by the objection and appeal procedure under the TAA and may not resort to the HC unless permitted to do so by order of that court.

The HC will only permit such a deviation in exceptional circumstances or in the interest of justice

Question 36

Lueven Metals Ltd v Commissioner for the SA revenue service

Answer 36

TP applies to court for a declaratory order prior to assessment - does the HC have jurisdiction?

Outcome:
A declaratory order is not appropriate if there are other specific statutory remedies available

Question 37

Who bears the onus in proving an amount should be deducted etc

Answer 37

Tax payer , on a balance of probabilities.