The Tax Administration Act No. 28 of 2011 (“TAA”) deals with tax administration. It seeks to incorporate into one piece of legislation administrative provisions that are generic to all South African tax acts and currently duplicated in the different tax acts, to remove redundant administrative provisions and to harmonise the provisions as far as possible. In terms of a proclamation by the President in the Government Gazette on 14 September 2012, it was announced that the TAA, but for certain rules on interest, came into operation on 1 October 2012. This brings about substantial changes to the rights and obligations of taxpayers.
The powers of the South African Revenue Service (“SARS”) in respect of conducting an audit were not extensively (if at all) regulated under the Income Tax Act No. 58 of 1962 (“Income Tax Act”). Taxpayers could be subject to extensive requests for information without being informed by SARS on the status of the audit, whether any findings had been made or when the audit was anticipated to be concluded.
SARS had section 74A of the Income Tax Act at its disposal (which is now repealed by the TAA) which provided that the Commissioner or any officer may, for the purposes of the administration of the Income Tax Act in relation to any taxpayer, require such taxpayer or any other person to furnish such information (whether orally or in writing) documents or things as the Commissioner or such officer may require. The Income Tax Act contained no further rules relating to the timeline of an audit. A taxpayer could be left in a state of uncertainty and subject to ongoing requests for information, documents or things. If a taxpayer were to argue that an audit had to be completed within a reasonable time, SARS’s counter stance might be that reasonability must be weighed up against the available (limited) resources of the fiscus.
Section 42 of the TAA however now provides that a taxpayer must be kept informed by SARS during tax audits. A SARS official involved in or responsible for an audit must, in the form and in the manner as may be prescribed by the Commissioner by public notice, provide the taxpayer with a report indicating the stage of completion of the audit. In this regard, a notice was published in the Government Gazette on 1 October 2012 (“Notice”).
The Notice provides as follows:
“A SARS official involved in or responsible for an audit instituted before but not completed by the commencement date or instituted on or after the commencement date, must provide the taxpayer concerned with a report indicating the stage of completion of the audit -
(a) in the case of an audit instituted before the commencement date, within 90 days of the commencement date and within 90 day intervals thereafter; and
(b) in the case of an audit instituted on or after the commencement date, within 90 days of the commencement date and within 90 day intervals thereafter, until the conclusion of the audit.”
As such, taxpayers currently under audit, irrespective of whether the audit was instituted before or after 1 October 2012 (the commencement date of the TAA) are entitled to a report of the stage of completion of the audit. In essence, taxpayers under audit before 1 October 2012 are entitled to such a report within 90 days after 1 October 2012 and within 90 day intervals thereafter. Taxpayers under audit from 1 October 2012 are also entitled to such reports at 90 day intervals. Even though not expressly regulated in the TAA, an audit is arguably instituted on the day that a letter of engagement is issued by SARS to a taxpayer in terms of which SARS informs a taxpayer that an audit will be conducted.
It is not clear exactly how the “days” should be calculated in terms if which taxpayers under audit are entitled to their section 42 reports. Section 1 of the TAA defines a “business day” as “a day which is not a Saturday, Sunday or public holiday, and for purposes of determining the days or a period allowed for complying with the provisions of Chapter 9, excludes the days between 16 December of each year and 15 January of the following year, both days inclusive”. Chapter 9 deals with dispute resolution (of which section 42 is not part). A “day” is not defined in the TAA, and, thus, the provisions of the Interpretation Act, No 33 of 1957, will prevail. This requires that the first day of the 90 day period is excluded, and that the last day is included. Where the last day falls on a Sunday or a public holiday, that day must be disregarded in determining the 90 day period.
The Notice provides further that the report to be provided by SARS to taxpayers under audit must include the following details as at the date of the report:
“(a) a description of the current scope of the audit;
(b) the stage of completion of the audit; and
(c) relevant material still outstanding from the taxpayer.”
Section 42 of the TAA further provides that upon conclusion of an audit and where the audit was inconclusive, SARS must inform the taxpayer accordingly within 21 business days. Alternatively, upon conclusion of an audit and where the audit identified potential adjustments of a material nature, SARS must within 21 business days (or the further period that may be required based on the complexities of the audit) provide the taxpayer with a document containing the outcome of the audit, including the grounds for the proposed assessment (this is a so-called “Letter of Findings”).
Upon receipt of the Letter of Findings the taxpayer may within 21 business days of delivery of the document, or the further period requested by the taxpayer that may be allowed by SARS based on the complexities of the audit, respond in writing to the facts and conclusions set out in the document.
Even though no timelines are prescribed in the TAA in terms of which an audit must be concluded by SARS, taxpayers should no longer be left in the dark regarding the progress of tax audits conducted by SARS. Taxpayers now have a right to be informed on regular intervals of the scope of the audit, the stage of completion thereof and to be informed on any relevant material still outstanding from the taxpayer. However, many of the new words and concepts used in the new TAA will have to be tested and defined by our courts as the legislation starts to be implemented.