Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 7.5)

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



Where a review application is based on SARS’ non-compliance with the provisions of s 195(1) of the Constitution and section 4(2) of the SARS Act, it is arguable that a right of the taxpayer has been adversely affected with direct, external legal effect, and consequently the provisions of s 6(1), 7(1) and 8(1) of PAJA would be met, entitling the taxpayer to access the codified grounds of review in terms of s 6(2) of PAJA. Here the usual meaning of ‘a right’, is that of an enforceable claim against a duty-holder, is met.35 A decision will have a direct, external legal effect if it has an actual impact on the taxpayer’s rights or interests.36 It may also affect propriety steps leading to a final determination.37

Where the conduct of SARS exercising powers in terms of ss 74A and 74B is unlawful, unreasonable and procedurally unfair (and unconstitutional or ‘invalid’), taxpayers have a number of grounds of review, developed by the Constitution through specific legislated provisions, namely: sections 1(c), 33, 41(1), 172(1), 195(1) and 237 of the Constitution, read with s 4(2) of the SARS Act, and ss 6(2), 7(1) and 8(1) of PAJA. In addition, the jurisdictional facts38 of ss 74A and 74B, read with 74 of the Income Tax Act, must be met. If any of these provisions are not complied with, the conduct of SARS will be inconsistent with the Constitution and may be reviewed by the High Court in terms of PAJA, and failing that, in terms of a transgression of the principle of legality, both by way of a Rule 53 application.

A review application in terms of PAJA, and in the alternative, a review application in terms of a transgression of the principle of legality, will entail a Rule 53 application process, with the grounds for review as set out in section 5.5.6 above being applicable. However, if PAJA is not available to the taxpayer, the principle of legality is.

Rule 53 is the preferred route to review the conduct of SARS in respect of a decision in terms of ss 74A and 74B. It was promulgated to come to the aid of, inter alia, taxpayers who need to review public power. The application process allows taxpayers to state their complaint and to request that SARS makes available its record on exercising the discretion. This also creates compliance with the transparency requirements in the Constitution.

Once the taxpayer has access to the SARS record, he or she can establish whether or not SARS has complied with its Code of Conduct, and the internal SARS Internal Audit Manual for assessors. The taxpayer then has the option of amending the application to take into account any observations made from the SARS record. The grounds of review can then be carefully determined, in line with the submissions made in this thesis.

SARS may reply to the application by stating that the taxpayer’s application is
premature, because the process leading to the issue of the revised assessment is not complete. SARS may argue that its decision-making process is not final, and that the matter is not ripe for hearing. The revised assessment will give the taxpayer the opportunity to object and appeal in the normal course of the dispute procedure.

The taxpayer may respond that the nature of the decision by SARS to obtain
information is a final one. Other new decisions may follow. But that decision is final.

The procedures of objection and appeal to review this decision in terms of the
Income Tax Act are not available to the taxpayer. Sections 74A and 74B are not subject to objection and appeal. That leaves the taxpayer with the choice: access to the High Court, by virtue of ss 34 and 172 of the Constitution.

In essence, by challenging the conduct of SARS at the time that the inquiry and audit commences the taxpayer is immediately able to bring a suite of rights into play. SARS, on the other hand, when called upon to do so, must justify its actions. As a result, instead of SARS merely requesting information and then simply proceeding to the next point of issuing revised assessments, triggering the ‘pay now argue later’ principle, a proper inquiry is brought about between the adversaries where the taxpayer questions the motivation, purpose, and nature of the audit, in order to narrow down its scope. This ensures that the necessary infringement by SARS of the taxpayers’ tax affairs in carrying out a regulatory process is kept to a minimum, in line with the spirit of the Constitution. To repeat the words of John Locke in the Second Treatise of Government in 169039:

…we must consider, what state all men are naturally in, and that is, a state of perfect freedom to order their actions, and dispose of their possessions and persons, as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man.

A state also of equality, wherein all the power and jurisdiction is reciprocal, no one having more than another; …

The process of allowing the taxpayer to question and review the conduct of SARS in the exercise of its broad public powers in ss 74A and 74B accomplishes the ideal set by John Locke in 1690, as it has found its way into the main thread underlying the Constitution of South Africa. The public power of SARS to regulate through access to taxpayers’ information is balanced by the rights of taxpayers to question and review. The circle is complete.




35 Klaaren J & Penfold G Just Administrative Action Second ed (2002) at page 63-21.
36 Ibid. at page 63-22.
37 Nextcom Cellular (Pty) Ltd v Funde NO and Others 2000 (4) SA 491 (T), in which Coetzee AJ held that a recommendation of the South African Telecommunications Regulatory Authority to the Minister of Communications as to the award of the third cellular licence constituted a reviewable decision, even though preliminary in nature. Also see Gertis Trading (Pty) Ltd v West Sun Hotel (Pty) Ltd and Others 1984 (2) SA 431 (D).
38 See the analysis in section 3.3.2: Jurisdictional facts supra.
39 John Locke Second Treatise of Government Amazon Kindle Edition chapter two: Of the State of Nature, Sect. 4.

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.

Twitter LinkedIn 

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.