High Court (Eastern Cape Division, Port Elizabeth) decision on SARS’ information gathering powers in terms of section 46 of the Tax Administration Act

 

  • In this case, the taxpayer refused to submit a so-called lifestyle questionnaire (“questionnaire”) to the South African Revenue Service (“SARS”), which was served to him in terms of section 46(1) of the Tax Administration Act (the “Admin Act”).
  • The information sought in terms of the questionnaire related to the taxpayer and his spouse’s personal particulars and circumstances, personal and private investments and assets, properties owned by them, income received during the period under review and expenses.
  • After receiving the questionnaire, the taxpayer sought to make his compliance with the information request conditional upon SARS furnishing him with certain information, including the following:
    • in terms of which sections of which law the taxpayer was obliged to submit the relevant material;
    • if this is for the administration of any tax law, the relevant subsection of that definition in section 3(2) of the Admin Act must be quoted, and supported by the underlying facts and circumstances that make the enquiry foreseeably relevant with the reasonable specificity as required by the Admin Act;
    • adequate reasons for the questionnaire, investigation and audit and reasons for which it is being conducted, including the underlying risk analysis for the industry the taxpayer is in, on which this audit is based.
  • The taxpayer also informed SARS that he will submit a formal request for the abovementioned information under the Promotion of Access to Information Act (“PAIA”).
  • SARS accordingly launched proceedings on a semi-urgent basis for an order, inter alia, directing the taxpayer to comply with section 46(4) of the Admin Act by submitting his response to the questionnaire.
  • SARS rejected the taxpayer’s information request under PAIA and contended that:
    • the provisions of section 46 of the Admin Act are peremptory, and where a taxpayer is required to submit “relevant material” to SARS under that section, he “must submit the relevant material to SARS at the place and within the time specified in the request”;
    • the information that the taxpayer is required to provide constitutes “relevant material” as defined by section 1 of the Admin Act;
    • insofar as section 46 provides that SARS may only require a taxpayer to submit relevant material “for purposes of the administration of a tax act in relation to a taxpayer”, the stated objective of the questionnaire (being to obtain information in relation to anything that may affect the liability of a person for tax or a taxable event) is clearly covered by the definition of the term “administration of a tax act”; and
    • the information provided to SARS by the third parties, coupled with the fact that the taxpayer has not registered as a taxpayer or submitted tax returns, constitutes a rational and justifiable basis for the request in terms of section 46 of the Admin Act.
  • The taxpayer contended that:
    • the request for him to complete the questionnaire is an unlawful “fishing expedition” which infringes on his constitutional and statutory rights;
    • he is, by virtue of section 33 of the Constitution and the provisions of the Promotion of Administrative Justice Act (“PAJA”), or the principle of legality, entitled to expect fair, reasonable and lawful conduct on the part of SARS and he is furthermore entitled to protection of his dignity and privacy in terms of the Constitution, and not to be subjected to any form of harassment or unnecessary invasive conduct by SARS;
    • SARS is required to be transparent in its dealings with him in respect of information held by it, and he is accordingly not under any obligation to respond to the questionnaire until such time as his internal appeal had been finalised or the Tax Ombudsman has ruled on his complaint; and
    • the information sought in the questionnaire is not specific, but general and wide ranging. The questionnaire is therefore arbitrary and capricious, and the information sought therein is not “relevant material”; and
    • the provisions of the Admin Act do not authorise SARS to enforce a section 46 request by virtue of a mandatory interdict and the only remedy available to SARS in such a case is that provided for in section 234 of the Admin Act.
  • The court held that section 46 of the Admin Act was clearly peremptory and that the information requested under the questionnaire constituted “relevant material”. The court further held that the information requested satisfied the specificity requirement under the Admin Act and that a sound legal basis existed for issuing the questionnaire. On this basis, the request for information by SARS did not amount to a “fishing expedition” as contended by the taxpayer.
  • The court also rejected the taxpayer’s contention that SARS could not enforce a section 46 request by way of a mandatory interdict and held that SARS was entitled at common law to apply for an interdict and it did not require a statutory sanction to do so.
  • Furthermore, the court held that since the request in casu was still a preliminary investigation by SARS, it could not adversely affect the taxpayer’s rights, therefore precluding the possibility that it amounted to an administrative action under PAJA.
  • The court accordingly ordered the taxpayer to comply with the section 46 information request, and upon failure to comply therewith and upon 48 hours’ written notice to the taxpayer, that the taxpayer be held in contempt of court and be committed to imprisonment until such time as he complies with the court order.
  • Find a copy of the judgment here.

 

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