How the office could affect taxpayers.The recently promulgated Tax Administration Act, No. 2011 (TAA), introduces the Office of the Tax Ombud (the Tax Ombud). According to section 14 read with section 259 of the TAA, the Minister of Finance must appoint a person as Tax Ombud within one year after the commencement date of the TAA, which was on 1 October 2012. The Minister further announced in his 2012 Budget Speech on 22 February 2012 that the Tax Ombud will be appointed during the course of this year.
In ordinary language, the term “ombudsman” (derived from the Swedish term meaning “legal representative”) can be defined as “an official appointed to investigate individuals’ complaints against maladministration, especially that of public authorities” (Oxford English Dictionary). With its origins in Scandinavian history, it is generally accepted that the modern office of ombudsman derives from 1809, when the Swedish legislature established the Office of the Parliamentary Ombudsmen. The main purpose of this institution was to safeguard the rights of citizens by way of a supervisory agency that was completely independent, and which could contend with complaints submitted by the general public regarding administrative matters.
In South Africa, the Katz Commission proposed the introduction of an ombudsman to deal specifically with tax issues in 1995. Various submissions were made to Treasury in this regard, and a Tax Ombud was finally proposed in draft legislation in the 2011 Tax Administration Bill. After initial rounds of public and further comments, the Tax Ombud officially became a legislative institution on 1 October 2012.
Staffing and funding of the Tax Ombud
The TAA determines that the Tax Ombud will be staffed by Sars employees who will be seconded from Sars upon request. In Treasury’s comments on the legislation, it was mentioned that this provision was included to ensure that individuals are appointed who have a sound knowledge of South African tax legislation and are well-versed in Sars policies and procedures. The Tax Ombud will be funded by Sars.
Powers, duties and functions of the Tax Ombud
The Tax Ombud is tasked with reviewing and investigating taxpayer complaints relating to service, procedural or administrative matters. Examples of such issues include if Sars does not respond to correspondence; does not assist with reasonable taxpayer requests; or fails to adhere to correct procedures prescribed by the Income Tax Act, No. 58 of 1962 (the ITA). The Tax Ombud may not, however, review Sars policy (unless it has resulted in administrative or service issues); nor may it review legislation or tax matters that are subject to objection or appeal.
Taxpayers must first avail themselves of the existing complaint resolution mechanisms within Sars before approaching the Tax Ombud. This process involves first contacting a local Sars branch or call centre, and then, if necessary, escalating the matter to a Sars manager or specialist support. If a taxpayer’s complaint is not resolved at this stage, the Sars Service Monitoring Office can be approached.
Only once all of these channels have been exhausted without success, can taxpayers approach the Tax Ombud for assistance (exceptions may be made, however, ief there is a possibility of undue hardship or if there is sufficient urgency). The Tax Ombud is positioned within the existing legislative framework as an intermediate step between Sars’ internal procedures and the domain of the public protector and court system.
The Tax Ombud is mandated by the TAA to act independently and to follow informal, fair and cost-effective procedures. It must review all complaints received, but is free to decide which complaints it will seek to resolve and how it will go about doing so. The Tax Ombud can further decide to terminate a complaint resolution process that has been initiated, but must give reasons to the taxpayer as to why it decided to do so. Certain factors are listed in the TAA to guide the Tax Ombud in reaching such a decision, including the age of the request; the nature and seriousness of the issue; and the findings of any other redress mechanisms.
The Tax Ombud is mandated to identify any systemic and emerging issues that come to its attention during the course of its operations. Such issues can relate to Sars’ service, the application of the TAA and any administrative or procedural aspects that result from the application by Sars of any of the listed “Tax Acts” (which include the ITA and the Value-Added Tax Act, No. 89 of 1991, for instance). e
There is an obligation on the Tax Ombud to communicate with Sars in its attempts to resolve taxpayer complaints. It is bound by confidentiality and it may not reveal taxpayers’ information to Sars, except if necessary to assist with the resolution of the complaint. The Tax Ombud may, for example, have to provide a complainant’s tax reference number and the details regarding the complaint to Sars to seek resolution. Ultimately, the Tax Ombud may make recommendations to the taxpayer or Sars in seeking to resolve the matter. These recommendations are not, however, binding on Sars or on the taxpayer.
Duty to report to the Minister of Finance
The Tax Ombud must submit an annual report to the Minister of Finance and a quarterly report to Sars. The reports must contain a summary of at least ten of the most serious issues investigated by the Tax Ombud during the period in question. An inventory must be included that describes the actions taken by the Tax Ombud in seeking resolution, as well as the results thereof. It must further set out what action has been planned and is still pending, as well as indicate where no action was taken and the reasons for inaction. The report must highlight any systemic or emerging issues identified over the course of the period. Lastly, the report must make recommendations as to administrative action suggested to resolve complaints and to address systemic or emerging issues.
Conclusion
Although the introduction of a Tax Ombud by the TAA is a commendable step in an effort to improve the efficiency of tax administration in South Africa, there may be certain shortcomings in the legislative framework.
The TAA for instance requires the Tax Ombud to act independently, fairly and informally, but this may be threatened by the fact that the Office will be staffed by Sars employees and funded by Sars. Moreover, the Tax Ombud has a wide discretion as to the handling of complaints, and there is no guarantee to taxpayers that their complaints will be resolved. While the reporting obligation may act as an incentive to the Tax Ombud, there is no clear and direct enforcement mechanism if it fails to perform.
The fact that the Tax Ombud’s recommendations are not binding on Sars is a further cause for concern, and raises doubts as to the efficacy of this institution. The Ombudsman for Short-term Insurance is a noteworthy example of a contrasting approach, as short-term insurers have agreed to be bound by its decisions. This is an exemplary safeguard offered to consumers of short-term insurance.
It is submitted that the Tax Ombud would be a more useful and appropriate institution if Sars and taxpayers were similarly bound by its recommendations. Treasury has expressed its contrary view that the Tax Ombud would be more effective if its primary weapon was not enforcement or other direct redress mechanisms, but rather the ability to publicise details of complaints and systemic or emerging issues. Taxpayers faced with complaints that cannot be resolved by the Tax Ombud would probably not agree. This may yet prove to be an opportunity missed to provide South Africa’s taxpayers with an effective complaint resolution mechanism, removed from the vast expenses of the court system.
To be fair, however, the Tax Ombud has yet to be constituted and has not yet heard a taxpayer complaint or issued any reports. It is with much anticipation, therefore, that we look forward to seeing it in action, with the hope that its bark is chilling enough to disguise its lack of bite.
Rudi Katzke, associate, Webber Wentzel