Complaints that the South African Revenue Service (SARS) is becoming increasingly aggressive and overstepping its mandate have grown louder over the years.
According to Nico Theron, founder of Unicus Tax Specialists SA, these incidents reflect deeper systemic pressures arising from National Treasury’s demand for increased tax revenue to service interest on rising debt and other government expenditure.
“There is pressure, there are cracks, and there is collateral damage,” says Theron.
“Sometimes it becomes necessary to respond with equal aggression because, if you do not, you will lose the fight.”
How taxpayers can fight back
Taxpayers have several avenues for recourse, including SARS’s internal complaints process and the Office of the Tax Ombud. However, these mechanisms can be time-consuming.
Increasingly professional intervention is required urgently, particularly where a person’s livelihood or a business’s sustainability is under threat. Such situations often call for an immediate and decisive response.
“Contrary to popular belief not all decisions and assessments are subject to objections and appeal, but that does not mean the taxpayer cannot fight back.”
One must also recognise that taxpayers may feel that SARS is wrong, when in fact SARS is not.
Given the complexity of tax legislation taxpayers are not always equipped to take SARS on and do not realise what is available to them. Theron explains that, for example, taxpayers can threaten with a default judgement court application if SARS does not respond to a valid objection within the prescribed period.
SARS then has 15 days to remedy the situation otherwise the matter proceeds to court. That is a powerful provision, but the taxpayer must have the technical knowledge when and how to rely on it.
“You can fight back but it needs to be done in a structured, disciplined and informed way, or else you are in for an expensive hiding,” warns Theron.
Calls for stronger taxpayer protections
Dawie Roodt, chief economist at the Efficient Group, proposes stronger legislative changes to support taxpayers. For example, if SARS does not respond to a complaint within two weeks, then it must be accepted that the taxpayer is correct.
Tax recordkeeping obligations should be streamlined, with SARS losing the right to reassess if it fails to act within a defined timeframe.
Is South Africa’s tax burden too high?
The current tax system does not fit a developing country like South Africa, Roodt adds. The tax mix is wrong, it is highly complex, and it is expensive to comply with. The burden is also skewed with only a small portion of individuals and companies carrying most of the burden.
“The fiscus in SA is particularly redistributive. The expenditure is not benefitting the people who paid the taxes,” says Roodt.
There are approximately 30 million people dependent on the state, two million government employees receive 17% of the GDP through the wage bill and tenderpreneurs and politically connected people put constant pressure on the finance minister to collect more money.
“The country is already beyond the optimal tax rate for personal income tax, corporate income tax and value-added tax. It undermines economic growth directly,” he says.
The consequences of an excessive tax burden
Taxpayers are increasingly looking for ways to escape what they perceive as an excessive tax burden. This ranges from limiting income-generating activities to aggressive tax planning and, in some instances, illegal tax evasion. Others rely on offshore structures and sophisticated financial arrangements to structure their affairs in a manner that reduces their tax liability.
“High levels should only be accepted if the state is efficient and productive.” Roodt urges.