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Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 7.2)

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



In s 33 the Bill of Rights sets out three important steps that SARS must adhere to in emphasising its wide public powers, namely: lawfulness, reasonableness, procedural fairness and the giving of adequate reasons for any administrative action.1

This in turn has been developed in the promulgation of PAJA, which has codified the grounds of review in s 6(2). However, applying a decision in terms of ss 74A and 74B to the definition of ‘administrative action’ presents a difficulty in that the definition of ‘administrative action’ is limited enough to allow SARS to make an argument that the exercise of its decision under ss 74A and 74B is not subject to the provisions of PAJA; if it was, SARS may argue that its ability to conduct audits and inquiries could be severely hindered.2

In interpreting these provisions, not only should the ordinary grammatical meaning be ascertained, but SARS should also give full recognition and effect to the fundamental rights and freedoms of taxpayers in line with the Constitution. In this regard, any interpretation should be a generous rather than a legalistic one, aimed at limiting the infringement of the rights of taxpayers, and with the view to fulfilling the purpose of the legislation. Because procedural fairness plays a pivotal role in SARS’ exercise of any discretion under ss 74A and 74B, the particular situation and circumstances of the taxpayer must be carefully considered to ensure full compliance with the rule of law and the constitutional principle of legality3 by SARS.

With regard to the definition of ‘administrative action’, the Supreme Court of Appeal held in the Grey’s Marine case4 that the definition of ‘administrative action’ must not be taken too literally, and here the purposive approach to interpreting the Constitution and PAJA must be applied. This dictum supports the view that the discretion of SARS in ss 74A and 74B is ‘administrative action’. But even if it is held by a court in the future not to be ‘administrative action’ (denying taxpayers the right to review SARS’ unlawful, unreasonable, or procedurally unfair and unconstitutional or ‘invalid’ conduct in terms of PAJA), ss 1(c), 33, 41(1), 195(1) and 237 of the Constitution, read with s 4(2) of the SARS Act, and the publication of the SARS Code of Conduct,5 read with the SARS Internal Audit Manual,6 creating a legitimate expectation,7 will support a review application through s 172(1) of the Constitution as a transgression of the constitutional principle of legality – which in any event requires SARS in exercising their public power to act lawfully, reasonably, procedurally fairly, and where appropriate with reasons. Taxpayers will be entitled to review any ss 74A and 74B discretion by SARS if it transgresses any of these provisions, guidelines or legitimate expectations in terms of a Rule 53 application to the High Court.8

Furthermore, the constitutional limitations, as stated in s 36 of the Constitution, do not apply to conduct (including the exercise of a discretion by SARS under ss 74A and 74B) because the exercise of a discretion is not ‘law of general application’ as required by s 36 of the Constitution (although the enabling law usually is).9Furthermore s 36 applies to justifying non compliance with s 33 of the Constitution, but does not specifically apply to the constitutional obligations in ss 1(c), 41, 195(1) and s 237. It will therefore be very difficult for SARS to justify10 that its conduct in an inquiry and audit falls outside the constitutional scrutiny proposed in this thesis.




1 See sections 2.5: Adequate Reasons, 3.3: Lawfulness, 3.4: Reasonableness and 3.5: Procedural Fairness, supra.
2 As argued by SARS in the unreported application of Drs Du Buisson, Bruinette & Kramer Inc. v C:SARS Case No. 4595/02 in the High Court of the Transvaal Provincial Division brought by a taxpayer to prevent SARS proceeding with an audit in terms of ss 74A and 74B.
3 See section 2.4: The Relevance of PAJA and the Principle of Legality supra.
4 Grey’s Marine Hout Bay (Pty) Ltd and Othersv Minister of Public Works and Others2005 (6) SA 313 (SCA).
5 (last accessed 31 March 2013).
6 See section 3.2 supra.
7 See Currie I & Klaaren J Promotion of Administrative Justice Act Benchbook (2001) SiberInk at 80. See also Williams R C et al Silke on Tax Administration (April 2009) Lexis Nexis at para 3.25 generally.
8 See Chapter 5 supra.
9 Premier of Mpumalanga and Another v Executive Committee of the Association of Governing Bodies of State-Aided Schools: Eastern Transvaal 1999 (2) BCLR151 (CC) at para [42]: ‘…no question of justification …can arise as the decision taken …did not constitute “a law of general application” as required by that provision.’; cf.Registrar of Pension Funds and another v Angus NO and others [2007] 2 All SA 608 (SCA) where the court held ‘in terms of law [of general application]’ would enable a decision. SARS decisions are enabled ‘in terms of law [of general application].
10 SARS will need to consider the decisions of Nyambirai v Nssa & Another 1995 (2) ZLR 1 (S) and De Freitas v Permanent Secretary of Agriculture, Fisheries, Lands and Housing 1998 3 LRC 62 as to the justification, rationality and limitation of a SARS decision; See alsoFerucci and Others v Commissioner for South African Revenue Service and Another 65 SATC 47 at pages 54-55; US v McCarthy 514 F 2d 368.


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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