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



Throughout this thesis, the difficulties surrounding the definition of ‘administrative action’ in PAJA, and the general submission that a discretion under ss 74A and 74B may not fall into that definition, have been discussed.

Section 6(2) of PAJA codified the grounds of review.125 Although PAJA only  applies to the review of ‘administrative action’ as defined this does not mean that ‘administrative action that is excluded from the definition of ‘administrative action’ is not reviewable:

‘like all other exercises of power by public officials and public bodies, such actions are reviewable for compliance with the founding value of the rule of law, including its principle of legality, entrenched in section 1(c) of the Constitution, at the very least.’

In Nomala v Permanent Secretary, Department of Welfare and Another,126 the court held that a matter was ripe for adjudication in relation to the lawfulness of administrative action where prejudice was inevitable even though the action had not yet occurred.

These judgments127 support the conclusion that the provisions of ss 74A and 74 are ripe for review in the appropriate circumstances, despite the general objections that maybe raised by SARS that its discretion does not fall into the definition of ‘administrative action’ in PAJA, or the fact that the provisions are investigative in nature, and preliminary as part of a multi-staged investigation. The exercise by SARS of its decision to conduct an inquiry and audit is the exercise of a power, and establishing the lawfulness, reasonableness and procedural fairness of the inquiry and audit require compliance by SARS with constitutional and other legislated jurisdictional facts.128

In light of a more recent development in the Supreme Court of Appeal that may have an impact on the submissions made in this thesis, it is necessary to comment on the dictum in Fuel Retailers of Southern Africa v Director General, Environmental Management, Department of Agriculture, Conservation and Environment, Mpumalanga Province and others,129 where it was held ‘that ‘[t]he cause of action for the judicial review of administrative action now ordinarily arises from PAJA, not from the common law as in the past.’

In the Bato Star case, O’Regan J130 contemplates ‘causes of action for judicial review of administrative action that do not fall within the scope of PAJA’, such as in terms of the principle of legality. She also stated that common law that remains relevant to administrative review will be developed on a case-by-case basis as the courts interpret and apply the Constitution and PAJA.131 This would include the development of the constitutional principle of legality in addressing those review areas that fall outside the scope of the definition of ‘administrative action in PAJA,132 if one is to accept that the definition of ‘administrative action’ is not wide enough to include the powers exercised by SARS under ss 74A and 74B relevant to administrative review will have to be developed on a case-by-case basis in the courts interpreting the provisions of PAJA and the Constitution. But one area that is made clear by the Supreme Court of Appeal in Rustenburg Platinum Mines Ltd (Rustenburg Section) v Commission for Conciliation, Mediation and Arbitration133 is the fact that the grounds for review in s 6 of PAJA inform the development of the common law as to the extent of the grounds of review that may be applied in reviewing powers such as those of SARS under ss 74A and 74B (through the principle of legality, where the provisions of PAJA are held not to be applicable).

However, if one is to argue successfully that the exercise of powers by SARS fall within the definition of ‘administrative action’ as submitted in this thesis, then the grounds of review in terms of s 6(2) of PAJA are available directly to the taxpayer in reviewing the powers of SARS under ss 74A and 74B.134




125 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC).
126 2001 (8) BCLR 844 (E): ‘Even at common law, it was not only actual infringements of rights which were considered ‘ripe’ for adjudication. Courts have been prepared to adjudicate on the lawfulness of administrative action measured against the yardstick of whether prejudice was inevitable, irrespective of whether the action had occurred or not.’ (Transvaal Coal Owners Association and Others v Board of Control 1921 TPD 447 at 452; Gool  Minister of Justice 1995 (2) SA 682 (C); Afdelings-Raad van Swartland v Administrateur, Kaap 1983 (3) SA 469 (C). A similar approach to this question was adopted by the Constitutional Court in the Levin matter where the provisions of the legislation sought to be declared inconsistent with the Constitution applied to an inquiry that had not yet commenced. (Ferreira v Levin NO and Others; Vryenhoek and Others v Powell NO and Others 1996 (1) BCLR 1 (CC) at 981B–H (para’s [165]–[166]).
127 This is also in line with Kriegler J’s judgment in Metcash Trading Limited v Commissioner, South African Revenue Service 2001(1) SA 1109 (CC).
128 See also the discussion on lawfulness, reasonableness and procedural fairness in sections 3.3, 3.4 and 3.5 supra.
129 [2008] 1 All SA 627 (C) at page 632.
130 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC).
131 Ibid. at para [22].
132 For instance, wrong or non-performance giving rise to common-law review; See Hira v Booysen[1992] 2 All SA 344; Shidiack v Union Government (Minister of the Interior) 1912 AD 642; Britten v Pope 1916 AD 150.
133 2007(1) SA 576 (SCA) at para [25].
134 Similar tot he restrictions placed on the meaning of ‚administrative action’ under PAJA, in American jurisprudence, only final administrative decisions are subject to judicial review. In order to be final, conduct or action must mark the consummation of its decision-making process, and must not be of a tentative or intermediate nature. Furthermore the action must be one by which ‘rights or obligations have been determined’, or from which ‘legal consequences flow’ – Following American jurisprudence in Funk W F et al Administrative Law 2nd ed (2006) Aspen Publishers at page 234 – 239.


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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