Tax administration: SARS’ constitutional obligations and taxpayers’ rights

withholding taxAuthor: Andries Myburgh (Tax Director at ENSafrica).

Given recent media coverage of the various Constitutional Court challenges involving government institutions and the Presidency; the perceived power struggle between the Commissioner for the South African Revenue Service (“SARS”) and the Minister of Finance; as well as SARS’ continued pressure to collect revenue in difficult economic times that see corporate taxpayers endure declining revenues and increasing costs; it is useful to remind taxpayers and their shareholders of their constitutional rights and SARS’ constitutional obligations when it performs its functions in administering various taxation legislation. This topic is very complex and, accordingly, what follows is a very broad overview of these issues. Taxpayers and their shareholders are encouraged to obtain specialised legal advice or assistance when confronted with potential investigations or audits by SARS.

The supremacy of the Constitution

Section 1(c), read with section 2, of the Constitution confirms the supremacy of the Constitution and the rule of law, and stipulates that any law or conduct inconsistent with the Constitution is invalid (also referred to as the principle of legality).

SARS’ subjection to the Constitution when performing its powers and functions in terms of the Tax Administration Act, 2011 (“TAA”)

The South African Revenue Service Act, 1997 (the “SARS Act”) established SARS as “an organ of State”. Section 4(2) of the SARS Act confirms that, when SARS exercises public power or function, it must do so subject to its constitutional obligations, as stipulated in section 195 of the Constitution.

Section 195 of the Constitution stipulates that SARS must, inter alia, at all times:

  • act with a high standard of professional ethics;
  • use resources effectively, efficiently and economically;
  • act impartially, fairly, equitably and without bias;
  • be accountable; and
  • be transparent and provide taxpayers with timely and accurate information.

In addition, section 7 of the Constitution requires SARS to respect, protect, promote and fulfil the rights in the Bill of Rights of the Constitution.

Some of the fundamental rights of a taxpayer are:

  • the right to privacy, as envisaged in section 14 of the Constitution;
  • the right to information, as envisaged in section 32 of the Constitution, read with the Promotion of Access to Information Act, 2000 (“PAIA”);
  • the right to just administrative action as envisaged in section 33 of the Constitution, read with the Promotion of Administrative Justice Act, 2000 (“PAJA”);
  • the right not to give self-incriminating evidence and the right to a fair trial, as enshrined in section 35(3)(j) of the Constitution.

These rights are, however, subject to limitation under the provisions of section 36 of the Constitution. Therefore, when requesting information from a taxpayer, SARS would be encroaching upon the taxpayer’s right to privacy. However, it would be entitled to do so if it acts in accordance with legislation that complies with the provisions of section 36 of the Constitution. In terms of these provisions, SARS would be entitled to request information, provided that it:

  • acts in terms of law of general application;
  • to the extent that:
    • such limitation is reasonable and justifiable;
    • in an open and democratic society based on human dignity, equality and freedom; and
  • taking into account all relevant factors, including:
    • the nature of the right being transgressed;
    • the importance of the purpose of the limitation;
    • the relationship between the limitation and its purpose; and
    • whether it is the least restrictive means to achieve the purpose.

The TAA is an example of legislation of general application that entitles SARS to encroach on a taxpayer’s above-mentioned rights.

The TAA, SARS’ powers and function to request relevant material for an investigation or audit, and the taxpayer’s rights

Without going into detail, section 40, read with section 46 of the TAA is the empowering provision that entitles SARS to select a taxpayer for investigation or audit purposes and to request relevant material in terms of the provisions of section 46 of the TAA.

However, even though these sections allow SARS to encroach upon a taxpayer’s right to privacy, SARS must do so while respecting the taxpayer’s right to just administration in terms of section 33 of the Constitution, read with PAJA (to the extent that SARS’ conduct constitutes administrative action as defined in section 1 of PAJA); alternatively, in terms of the principle of legality. This means that SARS’ conduct must always be lawful, reasonable, and procedurally fair and, where appropriate, it must provide adequate reasons. If not, SARS’ conduct would be contrary to the Constitution and subject to review proceedings in the high court in terms of either PAJA or the principle of legality.

Therefore, for example, where a taxpayer receives a request for relevant material from SARS, the taxpayer may be entitled to request adequate reasons from SARS specifying the basis on which, and the purposes for which, the particular taxpayer has been selected for inspection, verification or audit in terms of the provisions of section 40 of the TAA.

Furthermore, where SARS requests a taxpayer to provide information, SARS must follow the process stipulated in section 46. In deciding how to react to such a request, the taxpayer must therefore be very mindful of this process.

Of particular importance are the defined concepts “relevant material” and “administration of a tax Act” used in section 46. The definition of “relevant material” stipulates that the information must be, in the opinion of SARS, “foreseeably relevant”. “Foreseeably relevant”, is not defined in section 46, however, guidance can be obtained from the OECD commentary on the Exchange of Information, which in essence states that the definition is very broad but falls short of being a “fishing expedition”. Therefore, SARS is not entitled to go on a “fishing expedition” when requesting the so-called relevant material.

It is important to understand that SARS may only request the “relevant material” for the purposes of the “administration of a tax Act” (defined in section 1, read with section 3(2), of the TAA). Therefore, not only would SARS have to meet the jurisdictional requirements of section 3(2) of the TAA, but must also marry the facts at hand to any one or more of the nine subsections stipulated in section 3(2) of the TAA. Put differently, if the requested information is for the purposes of the administration of any tax Act, SARS must quote the relevant subsection in section 3(2) of the TAA pertaining to the definition of relevant material that SARS relied on, and this must be supported by the underlying facts and circumstances that makes SARS’ inquiry foreseeably relevant with “reasonable specificity” (as required by section 46(6) of the TAA).

Accordingly, for SARS to exercise its discretion in a lawful and procedurally fair manner (for purposes of sections 40 and 46 of the TAA), it should, for example, demonstrate that it has screened the taxpayer’s tax returns and found that an investigation or audit is warranted; identified which elements of the tax return need to be audited; and obtain information from relevant sources in order to underline the issues relevant to the case it is currently investigating. If these preconditions are not met without proper justification by SARS, its conduct may prima facie be unlawful, unreasonable or procedurally unfair and contrary to the principle of legality enshrined by section 1c, read with section 2, of the Constitution. As such, SARS’ conduct could be set aside by way of review application to the high court in terms of either PAJA or the principle of legality.

The taxpayer may also be entitled (in terms of section 32 of the Constitution, read with PAIA) to make a formal request for SARS to provide the related information that it used to, firstly, select a taxpayer for audit or investigation and, secondly, the information it used (especially information not obtained from the taxpayer but another party), which must be directed to the information officer of SARS’ head office in Pretoria. Depending on the circumstances, the relevant taxpayer may well have just cause not to provide any information to SARS until such time that SARS has provided the requested information in terms of PAIA, and this may well (depending on the circumstances of the case) be grounds for SARS not to proceed with any investigation or audit.

Whenever providing any information (in writing or orally) to SARS, the taxpayer must be mindful of section 57 and 72 of the TAA. These sections deal with a taxpayer’s constitutional right not to give self-incriminating evidence, and the circumstances under which this right could be restricted, and the right to a fair trial, as enshrined in section 35(3)(j) of the Constitution.

However, it is of utmost importance to understand that “unless a competent court directs otherwise”, any information provided by a taxpayer, whether in a return or any other correspondence with SARS, could be used by SARS in criminal proceedings against the taxpayer.


SARS has far-reaching powers in terms of the TAA to obtain information (not just from taxpayers but other parties as well) for purposes of conducting an audit or investigation. However, such powers and functions must be performed in line with the empowering provisions of the TAA and must always be subject to the taxpayer’s rights enshrined in the Constitution. A taxpayer must at all times be aware and mindful of these rights and SARS’ obligations when SARS performs these public powers or functions. Furthermore, a taxpayer must be aware and mindful of its remedies to ensure that SARS complies with its constitutional obligations and must, in the interest of the relevant corporate taxpayer and its shareholders, use the appropriate remedy at the appropriate time. It is therefore advisable that a taxpayer obtain advice from its tax lawyer right from the beginning of its engagement with SARS.