Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

2.5 ADEQUATE REASONS

2.5.3 The meaning of ‘adequate reasons’

Hoexter notes151 that although PAJA gives effect to the constitutional right to reasons for administrative action as defined, and therefore only applies to those rights and legitimate expectations ‘materially and adversely affected by administrative action’152 as required in s 5(2) of PAJA, reasons will increasingly be accepted as part of the content of fairness, even where rights are not involved, or as the subject matter of the discourse of public power in the broader sense, outside the narrowly defined scope of ‘administrative action’ in PAJA. She states that this has been the trend in England and Australia. The point is also made that administrators should tend to err on the side of caution in giving reasons for decisions.153 Consequently, it is submitted that reasons in terms of the provisions of s 74 of the Income Tax Act would be required, even in a situation where it may be held by a court that a decision in terms of ss 74A and 74B is not administrative action defined in PAJA. This submission is supported by the commentary of Hoexter154 and the decision in Wessels v Minister of Justice and Constitutional Development155 where a full bench,
obiter, supported the argument that ‘the principle of legality, which includes rationality and accountability, imposes a duty upon the functionary exercising a public power to provide reasons for its act or decision’.

In CSARS v Sprigg Investments 117CC t/a Global Investment156 the Supreme Court of Appeal quoted with approval from Ansett Transport Industries (Operations) Pty Ltd and Another v Wraith and Others157 the requirements for ‘adequate reasons’ in respect of tax matters in South Africa is definitively spelt out by the Supreme Court of Appeal as follows:

…[T]he decision-maker [must] explain his decision in a way which will
enable a person aggrieved to say, in effect: ‘Even though I may not agree
with it, I now understand why the decision went against me. I am now in a
position to decide whether that decision has involved an unwarranted
finding of fact, or an error of law, which is worth challenging. This
requires that the decision-maker should set out his understanding of the
relevant law, any findings of fact on which his conclusions depend
(especially if those facts have been in dispute), and the reasoning
processes which led him to those conclusions. He should do so in clear
and unambiguous language, not in vague generalities or the formal
language of legislation…

In Industrial Equity Ltd v Deputy Commissioner of Taxation and Others158 the Australian High Court held that the powers of access and inquisition must be exercised for the purpose159 of the taxing act, and that question is to be considered in the context of the provision levying income tax.160 Section 264 of the Australian Income Tax Assessment Act 1936 (Cth) is similar in its terms to ss 74A and 74B of our Act. The Australian Administrative Decisions (Judicial Review) Act 1977 is broadly similar to PAJA, and s 13 thereof (like s 5 of PAJA) requires public officials to give adequate reasons for administrative decisions. The Australian courts, including the highest court, have consistently held that decisions calling upon taxpayers to produce information and documents under s 264 are administrative decisions reviewable under the Judicial Review Act and for which reasons must be given.161

However, in R v McKinlay Transport Ltd162 Lamer J and Wilson J held that a demand for information or documents is to enforce compliance with the Canadian Income Tax Act. While a demand for information163 constitutes a ‘seizure’ it is not an unreasonable one. They went on to state that the integrity of the tax system can only be maintained by a system of random monitoring and the information gathering provisions164 provides the least intrusive means by which effective monitoring of compliance with the Canadian Income Tax Act can be effected. A taxpayer’s expectation of privacy with regard to the information nd documents in question is relatively low, where seizures in the administrative or regulatory context may have a lesser standard.165 However, it is submitted that this reasoning does not detract from the constitutional obligation of SARS in South Africa to furnish adequate reasons for doing so, in line with what is required to be ‘adequate reasons’ in Sprigg Investment above.166

Next:  2.5.4 Conclusion

****************

Footnotes:

151 Hoexter C & Lyster R The New Constitutional & Administrative (2002) Juta at page 203.
152 As envisaged in s 5(1) of PAJA.
153 Wheelright K Taxpayer’ Rights in Australia in Bentley D Taxpayers’ Rights: An International Perspective Revenue Law Journal Bond University: Queensland 1998 at page 49; Hoexter C & Lyster R The New Constitutional &
Administrative (2002) Juta at page 203.
154Hoexter (2012) at page 472 where the author refers to a discussion by Plasket C Administrative Law (2009) Annual Survey page 1 at page 21 in discussing the judgment of Mokgoro J in Koyabe & others v Minister for Home Affairs & others (Lawyers for Human Rights as amicus curiae) 2009 (12) BCLR 1192 (CC) where the court recognised the right to reasons without requesting them, as a duty rested upon the administrators even though no express provision required them to do so: ‘…it is an incident of the founding value of the rule of law enshrined in section 1(c) of the Constitution. The rule of law was held to be the source of the development of a general duty to give reasons in Indian law, based on the same general idea as that expressed by Mokoro J in Vedachala Moodliar v State of Madras AIR 1952 Madras 276;
Gautam v Union of India 1993 (1) SCC 78.’
155 2010 (1) SA 128 (GNP) at para’s 141I-J.
156 73 SATC 114 (SCA) at para’s [12] and [13].
157 (1983) 48 ALR 500.
158 (1990) 170 CLR 649 at 659.
159 See also section 3.3: Lawfulness infra.
160 See also Local 174 International Brotherhood of Teamsters v US 240 F.2d 387 where ‘revenue agents … had (the) burden to show that (the) demand was reasonable under all circumstances  and to prove that books and records were relevant or material to (the) tax liability of taxpayer…’; May v Davis 7 F Supp 596.
161 Refer to the overview furnished in Carbone Statutory Judicial Review of the Administration of the Income Tax Assessment Act 1936 [1996] 6 Revenue Law Journal 104; and see also Industrial Equity Ltd v Deputy Federal
Commissioner of Taxation [1990] HCA 46 at para [25]. In O’Reilly v State Bank of Victoria Commissioners [1983] HCA 47 Gibbs CJ said that s 264 conferred on the Commissioner a power whose exercise ‘will be likely adversely to
affect rights of individuals” (para 7; see also the judgment of Mason J in the same case at para [18]; and see Fieldhouse v Deputy Commissioner of Taxation [1989] FCA 397 at para [22] per Hill J).
162 [1990] 1 S.C.R. 627.
163 Canadian Income Tax Act (R.S.C., 1985, c.1(5th Supp.)) ss 231.1(1) and 231.2(1).
164 Ibid. ss 231.1 and 231.2.
165 For comparative American law see US v McKay 372 F.2d 174 where the court held that the ‘(p)ower of Commissioner of Internal Revenue to investigate records and affairs of taxpayers is greater than that of a party in civil litigation; such power may be characterized as an inquisitorial power, analogous to that of (a) grand jury and one which should be liberally construed, in context of which the criteria of relevancy and materiality have broader connotations than in context of trial evidence.’; See also Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at para’s [14]-[24]: ‘It is the function of the Commissioner to ascertain the taxpayer’s taxable income. To ascertain this he may need to make wide-ranging inquiries, and to make them long before any issue of fact arises between him and the taxpayer.’
166Supra footnote 168.