Author: Oddette Boshoff (Unikone)
In a recent (as yet unreported) High Court case, the Court overturned the previously guilty ruling of the Regional Court and ruled in favour of a taxpayer against SARS.
The taxpayer was initially charged and found guilty in the Regional Court on fraud as well as several transgressions of various tax acts.
The background to the various charges is:
- Fraud: The charges were that the taxpayer fraudulently and intentionally misrepresented to SARS that he did not receive taxable income for the 5 tax years 2001 to 2005, and that certain amounts was not received by or accrued to him. Furthermore, based on this the taxpayer misrepresented to SARS that he was not liable to submit income tax returns or declare those amounts for those tax years.
- Failure to submit income tax returns: The charges were that the taxpayer negligently failed to submit income tax returns in terms of s75(1A) of the Income Tax Act for the 5 tax years mentioned above, where there was a duty on him to do so due to the fact that he received taxable income that should have been declared on the income tax returns.
- Failure to register as a VAT vendor: The charges were that the taxpayer intentionally failed to register as a VAT vendor during July 2003 to January 2004 as contemplated in s23 of the VAT Act.
- Failure to submit VAT returns: The charges were that the taxpayer intentionally or negligently failed to submit VAT returns for the VAT periods from July 2003 to January 2004.
During the court proceedings the taxpayer explained that he did not receive sufficient taxable income during the tax years 2001, 2002 and 2003 that would have placed a duty on him to submit an income tax return for those years. During 2004 and 2005 he did receive sufficient taxable income in order for him to submit a tax return, but the tax due on those taxable income amounts, together with the applicable penalties and interest have since been paid to SARS. The onus was therefore on SARS to prove that the taxpayer did indeed receive sufficient taxable income during 2001 to 2003 that a tax debt was due to SARS by the taxpayer.
The taxpayer also explained that like many other ordinary South African taxpayers, he does not have sufficient knowledge and expertise to attend to his own tax affairs. Therefore he engaged the services of an accountant and tax practitioner during 2004 to bring his tax affairs in order. However, the particular accountant did not take care of this, and when the taxpayer became aware of this fact, he engaged the services of a second accountant and tax practitioner who then proceeded to bring the taxpayer’s tax affairs in order and up to date, specifically by submitting all outstanding tax returns of the taxpayer and having all outstanding taxes, penalties and interest paid.
With regards to the onus on the taxpayer to register as a VAT vendor, the taxpayer explained that he in fact agreed that he became liable during 2003/4 to register, and that he proceeded to complete and sign the necessary application forms and supporting documentation to be submitted to SARS, albeit late and not within the timeframes set in s23(2) of the VAT Act. However, the Commissioner in the meantime exercised his discretion in terms of s23(4) of the VAT Act and determined that the taxpayer should be registered as a VAT vendor from March 2004. As such, the taxpayer maintained that he was as a result of this not liable to submit VAT returns for the VAT periods between June 2003 and February 2004. All VAT returns from March 2004 has since been submitted and paid.
The SARS employee who was the investigating officer in the case regarding the alleged fraud, agreed during his testimony that he simply summarised all deposits on the bank statements of the taxpayer during the 2001 to 2005 tax years as possible taxable income from a trade, but did not give the taxpayer the opportunity to explain these deposits as is required. The investigating officer also took other information, circumstances and facts into consideration and formed his own opinion that it was the taxpayer’s intention to defraud SARS by failing to submit income tax return or declaring taxable income. The taxpayer’s omission was seen by SARS as misrepresentation.
The Court ruled that there was clearly no intention by the taxpayer to defraud SARS. The fact that the taxpayer omitted to file tax returns is not misrepresentation or intention to defraud SARS, nor did the taxpayer make any specific misrepresentation to SARS with regards to his tax affairs.
The Court also ruled that the administrative decision by the Commissioner of SARS to determine the date of registration as a VAT vendor binds all parties, and therefore the taxpayer is not liable to submit any VAT returns prior to March 2004, even though he first became liable to register as a VAT vendor prior to this date.
This article first appeared on unikone.co.za.