When a taxpayer is required to respond to the South African Revenue Service (“SARS”) pursuant to a request for information or an audit being conducted into their affairs, in general two issues may arise, namely (1) uncertainty as to the time period prescribed by when the taxpayer must respond or supply the requested information to SARS and (2) the question of how such time period is to be determined.
SARS generally institutes its information gathering powers by means of a written request to the taxpayer to supply certain information required by SARS. The information request notice usually sets out the information required as well as the time period by when such information must be supplied by the taxpayer or a third person.
Similarly, where the taxpayer’s affairs are the subject of an audit by SARS, upon SARS issuing its letter of audit findings, the taxpayer is usually afforded an opportunity to respond, within a prescribed period, to SARS’ audit findings prior to any assessments being issued.
At present, the Income Tax Act No. 58 of 1962 (“the Act”) does not specifically regulate the audit process and there is therefore no guidance in the Act as to the time periods which apply to the different steps involved in this process. In addition, while sections 74 to 74D of the Act regulate SARS’ information gathering powers, including the power to conduct an inquiry into the affairs of a taxpayer and the power of search and seizure, there is no reference in these provisions to the time period by when the different steps of the information gathering process must be taken, inter alia by when the taxpayer must respond to a request for information. As a result, the taxpayer is in most cases bound to comply with the time period prescribed by SARS in its request for information or letter of audit findings.
To the extent that the notice from SARS requires action from the taxpayer within 14 business days, the definition of a “business day” as contained in section 1 of the Act would be applicable to determine which days are included in the determination of due date of the response. A business day is defined in section 1 of the Act as any day other than a Saturday, Sunday or public holiday.
We have however had experience of requests for information or letters of audit findings requiring action or a response from the taxpayer within 10 “calendar days”. In certain other instances, taxpayers are required to respond within 10 “days”. In such circumstances, the meaning to be assigned to the terms “calendar days” or “days” must be first be determined by the taxpayer in order to establish the time period within which they must comply since these terms are not defined in the Act.
It seems that where a time period has been prescribed by SARS for supplying information requested or for responding to an audit query taxpayers have two options, namely to comply with the deadline or to request an extension of time from SARS, even where the time period set is clearly unreasonable or not sufficient in light of the amount or nature of information requested or the complexity of the matter.
In terms of section 83(23) of the Act, any reference to a “day” is a reference to a business day and excludes the period between 16 December of a year and 15 January of the following year. However, due to the fact that section 83(23) specifically refers to the fact that it applies for purposes of Part III of Chapter III of the Act (which deals with objections and appeals) and the rules governing objections and appeals, it should not necessarily apply to determine the time periods applicable to requests for information under sections 74 to 74D or to requests from SARS made pursuant to the audit process.
However, based on the definition of “business day” in the Act and the fact that section 83(23) excludes the period between 16 December of a year and 15 January of the following year, there would be a strong argument to be made by the taxpayer that any reference to a “day” by SARS should be read to mean a business day as defined in the Act and to exclude the period between 16 December of a year and 15 January of the following year.
In addition, where the time period set by SARS is unreasonable, the taxpayer could challenge the action taken by SARS in imposing an unreasonable deadline as unfair administrative action under the provisions of the Promotion of Administrative Justice Act, No 3 of 2000.
This uncertainty relating to time periods pursuant to information requests and the audit process should soon be alleviated by the coming into effect of the Tax Administration Bill 11B of 2011. The Tax Administration Bill as passed by the National Assembly on 24 November 2011 (“the Tax Administration Bill”) is intended to provide for the alignment of the administrative provisions of all tax statutes administered by the Commissioner, excluding customs/legislation, and the consolidation of the provisions into one piece of legislation to the extent practically possible.
In respect of a tax audit, the Tax Administration Bill prescribes that the taxpayer has 21 business days from receipt of the letter of audit findings to respond to SARS. The definition of “business day” is similar to the current definition in section 1 of the Act.
In addition, the Tax Administration Bill permits SARS, to require the taxpayer or another person to submit, within a reasonable period, any relevant material that SARS requires. SARS may extend this period where good cause has been shown. A “reasonable period” is not defined in the Tax Administration Bill.
Therefore, once the Tax Administration Bill comes into operation the period for responding to a letter of audit findings will be regulated by legislation. However, the period within which information must be supplied to SARS pursuant to an information request will be a reasonable period. This reference to a reasonable period in the Tax Administration Bill may lead to problems in the future as there may still be uncertainty as to what constitutes a reasonable period.