Section 98 of the Tax Administration Act (28/2011) provides for the withdrawal of an assessment by the South African Revenue Service (SARS) in certain circumstances. Before its amendment, Section 98 allowed for the withdrawal of an assessment – despite no appeal having been noted or objection lodged – that was issued:
- to the incorrect taxpayer;
- in respect of the incorrect tax period; or
- as a result of an incorrect payment allocation.
In terms of Section 98(2) of the Tax Administration Act, an assessment withdrawn under this section is regarded as not having been issued in the first place.
The Tax Administration Laws Amendment Act 2013 has extended the ambit of Section 98 of the Tax Administration Act by introducing further circumstances in which SARS may withdraw an assessment. Section 98(1)(d) provides that SARS may withdraw an assessment when it is satisfied that the assessment was based on:
- an undisputed factual error by the taxpayer in a return;
- a processing error by SARS; or
- a return fraudulently submitted by a person not authorised by the taxpayer.
However, such an assessment may be withdrawn only if the following additional requirements are met:
- The assessment must impose an unintended tax debt in respect of an amount that the taxpayer should not have been taxed.
- The recovery of the tax debt under the assessment would produce an anomalous or inequitable result.
- There is no other remedy available to the taxpayer.
- It is in the interest of the good management of the tax system.
Essentially, the new provisions contained in Section 98(1)(d) can find application only in situations where there is an undisputed factual error by the taxpayer in a return, a processing error by SARS or a fraudulent submission of a return. In addition, four further requirements must be met. The third requirement – which is that there be no other remedy available to the taxpayer – appears to be the most problematic.
SARS’s explanatory memorandum on the objects of the Tax Administration Laws Amendment Bill 2013 provides that the reason for the amendment to Section 98 relates mainly to the situation where erroneous assessments are discovered after the expiry of all prescription periods and remedies available to the taxpayer. This may result in a situation that is unreasonable or inequitable. Section 98(1)(d) aims to remedy this situation by allowing for the withdrawal of assessments in specified narrow circumstances.
In light of the rationale for the amendment, it may be argued that the ‘no other remedy’ requirement in Section 98(1)(d)(iv) is understandable, given that this is precisely the situation that the provision aims to address. On the other hand, attempting to use Section 98(1)(d) as a means of dispensing with an erroneous assessment may lead to disappointment because circumstances under which no other remedy is available to a taxpayer are very rare.
One would have to consider the interpretation of the words ‘no other remedy available’. Given the rationale behind creating a remedy for a taxpayer that would suffer inequitable treatment if all prescription periods and remedies were expired, it appears that ‘no other remedy’ should include a situation where the period for lodging an objection or appeal has expired or where a claim has been prescribed.
The amendments in Section 98(2) of the Tax Administration Act further provide that as an alternative to regarding the erroneous assessment as never having been issued, a senior SARS official may come to an agreement with the taxpayer as to the amount of tax properly chargeable for the relevant tax period and subsequently issue a revised original, additional or reduced assessment pursuant to such agreement. Such an agreed assessment would not be subject to objection and appeal.
While some may be disappointed that Section 98(1)(d) does not necessarily provide a simpler mechanism for doing away with an assessment, those who have discovered that they have suffered loss due to administrative errors or fraud may breathe a sigh of relief.