The power of search and seizure is one of the powers granted to the Commissioner of the South African Revenue Service (SARS) in order to effectively enforce, inter alia, the Income Tax Act No 58 of 1962 (Income Tax Act) and the Value-Added Tax Act No 89 of 1991 (VAT Act). The search and seizure provisions are currently contained in section 74D of the Income Tax Act and an almost exact replica of this section is found in section 57D of the VAT Act. These provisions authorise the Commissioner to enter and search any premises and search any person present on the premises, for any information, documents or things that may afford evidence as to the non-compliance by any taxpayer with his obligations in terms of the Income Tax Act or the VAT Act and to seize any such information, documents or things without prior notice and at any time.
The Commissioner is, however, not at complete liberty to conduct such a search and seizure operation. The basic principle that forms the basis of this power of the Commissioner in terms of both the Income Tax Act and the VAT Act is that a warrant must first be obtained from a judge. This warrant is an independent and objective authorisation which must be obtained by the Commissioner prior to a search and seizure operation.
The previous search and seizure provisions, i.e. the previous section 74(3) of the Income Tax Act and section 57(1) of the VAT Act, did not make provision for a warrant. The Commissioner was allowed himself to authorise and conduct a search and seizure operation. It seems however that these sections were not sustainable in our new Constitutional era and the legislature accordingly repealed those provisions and introduced the new section 74D into the Income Tax Act and section 57D into the VAT Act in 1996.
There was accordingly a development from a warrantless search and seizure at the absolute discretion of the Commissioner under the previous section 74(3) of the Income Tax Act and section 57(1) of the VAT Act into the general requirement of a warrant under the new sections of the Income Tax Act and VAT Act.
The search and seizure provisions of these two Acts were reconsidered recently and new provisions are introduced by the Tax Administration Bill (“TAB”). The drafting of the TAB was announced in the 2005 Budget Review as a project “to incorporate into one piece of legislation certain generic administrative provisions, which are currently duplicated in the different tax Acts”. The first draft of the TAB was released on the 30th of October 2009. Changes were made to this first draft, after hearing public comments, and a new draft TAB for second round public comments was released on the 29th of October 2010. Public comments could be submitted on the second draft until the 15th of December 2011. At time of writing, no third draft is yet available. The TAB provides that the Tax Administration Act will come into operation on a date to be determined by the President by proclamation in the Gazette.
Once the TAB becomes law, the new TAB provisions on search and seizure will replace, inter alia, section 74D of the Income Tax Act and section 57D of the VAT Act. The latest available draft of the TAB retains the general requirement of a warrant. Provisions that are similar to those in the Income Tax Act and the VAT Act relate to the application for and issuance of a warrant by a judge, the carrying out of the search, the retention by the Commissioner of the material seized and the return of such material to the taxpayer. Most principles will remain the same under the TAB, but the TAB has also introduced the somewhat controversial warrantless search and seizure provisions.
A senior SARS official is authorised by the TAB to conduct a warrantless search and seizure operation in certain circumstances. Such a warrantless search and seizure may be conducted in terms of the TAB if the person who may consent thereto so consents in writing or if the senior SARS official on reasonable grounds is satisfied that:
- there may be an imminent removal or destruction of relevant material likely to be found on the premises;
- if SARS applies for a search warrant, a search warrant will be issued; and
- the delay in obtaining a warrant would defeat the object of the search and seizure.
Even though this might seem like a radical new provision, it is clear that the circumstances under which such a warrantless operation may be conducted are very strict. In the Draft Explanatory Memorandum on the Draft Tax Administration Bill (2009), the SARS says the following on the warrantless search and seizure provisions:
“This power should assist in addressing the problem of tax evaders who, upon approach by SARS, waste no time to destroy all records and evidence of their fraudulent activities and details of income derived.”
It could be argued that the provisions are in breach of the constitutional right to privacy, but it must be remembered that constitutional rights can also be limited to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom. Our courts have previously found that “instant” warrantless powers are unconstitutional. This is when a power to conduct a search and seizure without a warrant is granted without the option of a warrant. This was the case under the previous section 74(3) of the Income Tax Act and section 57(1) of the VAT Act where the Commissioner had an absolute discretion and where no provision was made for an application for a warrant. However, where an Act provides for the general requirement of a warrant to conduct a search and seizure operation, and only allows for a warrantless operation in certain exceptional circumstances, this has been found to be constitutional by our courts. However, the courts consider the purpose of the relevant Act and whether the circumstances under which such a warrantless search and seizure could be conducted were narrowly defined. It could be argued that this is a unique test to be applied to each and every Act which authorises such warrantless operations and that the constitutionality of the new warrantless provisions of the TAB is not beyond doubt. Most Acts authorising such a warrantless operation have in fact not been constitutionally challenged.
It seems, on the one hand, that taxpayers in good standing with the SARS should not fear this new power of the Commissioner to conduct a warrantless search and seizure. One of the requirements in the TAB that must be met before a warrantless operation may be conducted is that there must be reasonable grounds that if SARS applies for a search warrant, a search warrant will be issued. A warrant may only be issued by a judge if satisfied that there are reasonable grounds to believe that a person failed to comply with an obligation imposed under a tax Act, or committed a tax offence. Accordingly, in order to conduct a warrantless search and seizure, there must be objective reasonable grounds to believe that a person failed to comply with an obligation imposed under a tax Act, or committed a tax offence. However, it does not seem that there are sufficient checks and balances in place. The difficulty which arises is that the SARS is required to objectively determine the reasonableness of its own view of the matter. Difficulties can always arise when a party, involved in a dispute and not sufficiently detached from that dispute, has to evaluate the reasonableness of its own point of view. It seems to us that it may well be in the interest of both the taxpayer and the SARS for there to be an independent oversight over the exercise of quite extensive powers by the state. One would like to see a more objective oversight from a third party to determine whether grounds exist for the invasion of privacy resulting from a search and seizure.