Tax Administration Act Overview

Tax Administration Act (TAA)

• The TAA aims to consolidate various Tax Acts into one piece of legislation.
• It incorporates generic administrative provisions previously duplicated in separate Tax Acts.
• Some administrative provisions specific to particular tax types remain in their respective tax Acts.

Learning Outcomes

• Students should be able to identify the legislative framework governing tax administration.
• Students should be able to identify the various stakeholders involved in the tax administration process.
• Students should understand the aspects of tax compliance, as well as the rights and obligations of SARS and the taxpayer.
• Students should be able to apply the dispute resolution process if a taxpayer is dissatisfied with an assessment or decision by SARS.

Overview

• The Tax Administration Act (TAA) is a comprehensive piece of legislation that unifies tax administration rules.
• It groups administrative provisions, which were previously scattered across multiple tax acts.
• Specific provisions, unique to particular tax types, remain in the corresponding tax Acts to ensure detailed administration of those specific tax types.

Legislative Framework

• The South African Constitution establishes the fundamental framework for the Tax Administration Act.
• The Promotion of Administrative Justice Act (PAJA) outlines procedures for resolving administrative disputes.
• The TAA builds on and adheres to these frameworks.
• Tax Administration provisions are divided into: Information gathering, tax compliance, and dispute resolution components.

Definitions - Section 1

• Business Day: Any day that is not a weekend or public holiday, excluding the period from December 16th to January 15th of the following year.
• Date of Assessment:
• For SARS assessments, the date the assessment notice is issued.
• For self-assessments: If a return is required, the date the return was submitted. If no return is required, it's the date of the last payment or effective date (if no payment for the period).
• Self-Assessment: A taxpayer determines the tax payable and either submits a return or makes the payment, if a return is not required.

Registrations (Section 22)

• SARS assigns a unique tax reference number to registered taxpayers.
• All returns and documents submitted to SARS must include the unique tax reference number.
• Registration requirements vary based on whether the taxpayer is required to register or wants to register voluntarily.
• Timeframes for registration may depend on particular tax acts relevant to the category of registration.

Duty to Keep Records (Section 29)

• Taxpayers must maintain records, books, and documents needed for tax compliance.
• These records should be able to show compliance with the tax act.
• Tax acts usually include specific requirements for record maintenance.
• Taxpayers are usually required to keep records for a period of five years from the date of return submission or the relevant tax period, as applicable.

Duty to Keep Records (VAT Act – Section 55)

• Detailed records of supplies, suppliers, tax rates, credit notes and so on.
• Include detailed records to help authorities readily identify/assess transactions accurately.
• A vendor's records are not required to show the tax rate if they have been authorized by the Commissioner according to regulations.

Assessment (Withdrawal) - Section 98

• SARS can withdraw an assessment under specific circumstances.
• Withdrawals typically occur if the assessment is for the wrong taxpayer, or incorrect period, or an error in payment allocation.
• A correction request is the practical, initial course of action.

Prescription – Section 99

• Assessments must be issued within a specified timeframe.
• Timelines are different for original, self-assessments, with or without a return, additional or reduced assessments.
• Timelines for issuing assessments are varied and depend on the type of assessment and the specific circumstances.

Assessment (Periods of Limitation) – Section 99

• Specifies limitations on when assessments can be issued.
• Time periods for various assessment types are explained.
• Conditions for extending timelines and considerations when assessments are caused by fraud, misrepresentation, or disclosure failure are highlighted.

Burden of Proof (Section 102)

• Taxpayers bear the onus of proving specific aspects of their tax obligations.
• Taxpayers need to prove items are exempt or deductible, rate of applicable tax, correct taxation amount, and the validity of a decision subject to appeal.
• SARS bears the burden of proof for reasons for penalty assessments.

Dispute Resolution

• Steps: The process usually involves a request for reasons for an assessment, an objection notice (or ADR), and possible appeal. Dispute resolution can possibly result in litigation
• Important Timeframes: Specific timeframes matter for objections, appeals, and ADR.

Administrative Non-Compliance Penalties

• Penalties are imposed for non-compliance with administrative provisions in the tax act.
• Penalties can be levied monthly up to a maximum of 35 months, or 47 months if the address is unknown.

Fixed Amount Penalties

• Penalties can differ based on the nature of the non-compliance, as well as the tax payable during assessment.

Penalty Amounts

• Variable penalties depending on the amount payable based on assessed loss or taxable income of the preceding year.

Percentage-Based Penalties

• Added penalty is a percentage of unpaid tax, as required by the relevant tax act.
• Penalty may be added to other penalties and interest.

Remittance of Administrative Non-Compliance Penalties

• Taxpayers can request remission of penalties if they can demonstrate why they could not comply with relevant tax requirements.
• SARS may reduce penalties in specific circumstances.

Understatement Penalty

• Penalties imposed when a tax return or payment is significantly lower than what it should be.
• Incorrect calculations, omissions, or intentional fraud can trigger penalties.
• SARS must prove reasonability of penalty assessments based on available information.
• There are specific categories of understatement and various penalties applicable to each.
• A mistake is not a penalty, only if it is not a bona fide, unintentional error.
• Penalties can be fixed amounts or percentages of the tax shortfall.

Substantial Understatement

• Understatement penalties can be applied if the prejudice to SARS/fiscus is greater than 5% of the amount chargeable for the period, or R1 Million, whichever is greater.
• Calculation steps are defined to determine if amounts are considered substantial understatements.

Shortfall

• Shortfalls are the differences between what was reported on the return and what should have been reported to the tax authorities. This includes cases where returns for refunds are significantly different from correct figures.
• Various example scenarios are provided to illustrate how shortfalls are calculated.

Criminal Offences

• Penalties can include fines and/or imprisonment.
• Criminal offenses relate to various non-compliance occurrences. Tax evasion and fraud. Filing a return without proper authorization.

Tax Practitioners

• Taxpayers may use tax practitioners to assist them with tax issues.
• The practitioner must register with appropriate bodies within a specific timeframe.