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Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 –

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


Before SARS is entitled to exercise its power to audit and investigate a taxpayer, it must satisfy the jurisdictional facts102 set forth in ss 74A and 74B, including those referred to in the definition of ‘the administration of the Act’.

The inquiry and audit must be in respect of a specifically named taxpayer. The investigating SARS officials must also hold the appropriate authorisation letter permitting the specific inquiry and audit. In complying with the definition of ‘for the purposes of administration of the Income Tax Act’, SARS must satisfy one or more of the eight subsections of that definition with supporting facts from the subject matter of the inquiry and audit. SARS will in any event at a later stage have to produce concrete evidence to justify any revised assessment, in accordance with the legitimate expectation created in its Code of Conduct read with the SARS Income Tax Practice Manual.103

Another requirement is compliance by SARS with the duties and responsibilities attached to exercising a discretion as denoted by the use of the word ‘may’ in ss 74A and 74B.

In Dawood’s case104 it was made clear that it is relevant to an inquiry and audit that where broad, unguided discretionary powers are given to SARS, guidelines should be provided and must be adhered to.

In this regard, Dawood’s105 case applies to the Code of Conduct and the unpublished guidelines in the SARS Internal Audit Manual. These guidelines should not be ignored by SARS in exercising its discretion in terms of ss 74A and 74B, unless specific justification exists for such a transgression. Any non-compliance with these internal guidelines would prima facie be indicative of SARS’ non-compliance with its constitutional obligations, the rule of law and the principle of legality. It is also a transgression of SARS’ duty to comply with its own self-imposed practices, indiscriminately. Impartiality and unbiased conduct by SARS are part of their constitutional obligations in terms of s 195(1) of the Constitution. These guidelines internally regulate the powers given to various SARS officials, where SARS officials must be satisfied as to whether or not they have: ‘insight into … the business process of the taxpayer …’; ‘screened the tax returns of the taxpayer and determined that they warrant an audit’; ‘identified which elements of the tax return(s) need to be audited’; and obtained ‘information from other sources … (on) … the potential issues of the relevant (audit) …’.106

In terms of s 6(2)(b) of PAJA (dealing with mandatory procedures), the failure on the part of SARS to comply with a ‘mandatory’ procedure or condition, would result in its conduct being unconstitutional, and invalid, and reviewable. These procedures are mandatory insofar as these guidelines have created a legitimate expectation for  taxpayers and non-compliance by SARS will illustrate and highlight conduct ‘otherwise unconstitutional or unlawful’ contemplated in s 6(2)(i) of PAJA. This in turn will point towards transgressions in the headings discussed below.

Next: Abuse of discretion



102 See section 3.3.2: Jurisdictional facts supra; South African Defence and Aid Fund and Another v Minister of Justice 1967 (1) SA 31 (C) where Corbett J at page 33 states the following in relation to jurisdictional facts: Before the State President is entitled to exercise this power to declare an organisation to be an unlawful organisation he must be satisfied that one or more of the conditions set forth in paras (a) to (e) of sec. 2 (2) exist. In order to satisfy himself in this way he must have before him some information relating to such matters as the aims and objects of the organisation in question, its membership, organisation and control, the nature and scope of its activities, what its purpose is and what it professes to be.…The content of this kind of condition is often referred to as a ‘jurisdictional fact’ (see Minister of the Interior v Bechler and Others, 1948 (3) SA 409 (AD) at p. 442; Rose-Innes, Judicial Review of Administrative Tribunals in S.A., pp. 99 – 100) in the sense that it is a fact the existence of which is contemplated by the Legislature as a necessary pre-requisite to the exercise of the statutory power. The power itself is a discretionary one. Even though the jurisdictional fact exists, the authority in whom the power resides is not bound to exercise it. On the other hand, if the jurisdictional fact does not exist, then the power may not be exercised and any purported exercise of the power would be invalid.
103 Preiss, M, Silke J, & Zulman R H The Income Tax Practice Manual (November 2012),
104 Dawood and Another v Minister of Home Affairs and Others 2000 (3) SA 936 (CC).
105 Ibid.
106 SARS Internal Audit Manual – Part 4: The Audit Process, at pages 2-6.


International Tax Attorney, EA, US Tax Court Practitioner in the USA, Counsel of the High Court in South Africa, adjunct Professor of International Tax at Thomas Jefferson School of Law.

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