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

CHAPTER 6 – THE IMMEDIATE FUTURE

6.3 RELEVANT MATERIAL

The definition of ‘relevant material’ in the Tax Administration Act provides for ‘information, a document, or a thing (all in turn defined, but creating meanings the same as those in the current Income Tax Act, 1962) that may be useful in assessing a tax, collecting tax, or showing non-compliance with an obligation under a tax act or a tax offence was committed (which is specifically defined to include any other offence involving fraud on SARS)’.

In ITC 173618 Selikowitz P made the following pertinent comments:

The term ‘administration of this Act’ is defined in s 74 and what is clear is that administration of the Act is a matter which falls within the domain of the Commissioner for Inland Revenue and should not be confused with this court’s independent jurisdiction to decide upon matters which arise out of that administration. In other words, the rights of the Commissioner to seek to obtain information, documents and such things as he may require is not a right which is a substitute for any procedure which may be found to be applicable before this tribunal. Indeed, the purpose of discovery is far wider than the purposes required for the administration of the Act. Discovery is by its nature an extremely important aspect of our litigation procedure. It entitles a party to prepare properly by knowing what documents and other discoverable items are in existence. They may be, either items which the other party who has to discover them, is going to use in the course of presenting his or her case, or, indeed, they may be documents according to the provisions of the Magistrates’ Court which tend to prove or disprove either party’s case. Discovery is intended to permit the parties to litigation, to have full information as to what documentation and other discoverable items are in existence. That is a different concept to that expressed in s 74A of the Act where the Commissioner would be seeking documents which he in his own mind decides could be relevant. Clearly there may be documents in existence and in the possession of the other party which the Commissioner may not consider necessary because either he does not know that they exist or he does not know what they contain. It is therefore not an answer to suggest that s 74A of the Income Tax Act provides the Commissioner with a substitute for formal discovery.

The principles set out in this judgment apply equally to the new ‘relevant material’ definition in the Tax Administration Act. However, one distinguishing factor may be the use of the words ‘that may be useful in assessing tax, collecting tax, or showing noncompliance’. These words seek to broaden the scope of what SARS is entitled to now in terms of the current Income Tax Act, and may include much more than mere factual information about a taxpayer’s tax affairs. This may include views or opinions (excluding those subject to attorney and client privilege)19 that would otherwise not be only of a factual nature. In a sense, SARS is attempting to bring forward the discovery process referred to by Selikowitz P in ITC 173620 above.

Despite these general criticisms, the main issue with the definition of ‘relevant material’ relates back to the mixed civil audit and criminal investigation audit referred to above in this thesis: ‘information, a document, or a thing … that may be useful in … showing noncompliance with an obligation under a tax act or a tax offence was committed’. The definition goes a long way to contribute to the potential transgression of taxpayers constitutional rights, in either not being able to be compelled21 to give self-incriminating evidence, or where compelled to do so by public policy, receive a guarantee that any such direct or derivative evidence obtained under compulsion, will not be used against the taxpayer in any subsequent criminal prosecution.

Next:  6.4 REQUEST FOR RELEVANT MATERIAL, AUDIT SELECTION AND FIELD AUDIT

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Footnotes:

1864 SATC 464 at pages 467-8.
19 Heiman Maasdorp & Barker v SIR 1968 (4) SA 160 (W).
20 64 SATC 464.
21 Sections 35(3)(h)-(j) of the Constitution; See also ITC 1818 69 SATC 98; Seapoint Computer Bureau (Pty) Ltd v
McLoughlin and de Wet NNO 1997 (2) SA 636 (W).