The Tax Administration Laws Amendment Act 23 of 2015 ("the Act") was published on 8 January 2016. Two of the most interesting changes to the Act are the extension to the prescription period in terms of section 99 and the amendment to the request of correction of errors in terms of section 93 of the Act.
Extension to the Prescription Period
Previously, section 99 of the Act generally prevented SARS from raising an additional assessment 3 years after the date of the original assessment (such as for income tax), and after 5 years in respect of self-assessments (such as for VAT).
According to the Explanatory Memorandum on the Objects of the Tax Administration Laws Amendment Bill 2015 ("the Memorandum"), SARS was faced with two main issues. Firstly, SARS found that it spent a long period of time on entitlement disputes, which left it with minimal time to deal with the assessment itself. Secondly, SARS found that complex matters could not be dealt with in such a short period of time.
In an attempt to curtail the above-mentioned issues, a new section 99(c)(3) and (4) are incorporated into the Act. Section 99(c)(3) provides that the SARS may, by prior notice of at least 30 days to the taxpayer, extend any of the aforementioned periods or an extended period under s99, before the expiry thereof, by a period approximate to a delay arising from either:
- a failure by a taxpayer to provide all relevant material requested under s46 of the TAA; or
- resolving an information entitlement dispute, including legal proceedings.
Section 99 (c) (4) now provides that SARS may, by prior notice of at least 60 days to the taxpayer, extend any of the aforementioned periods, before expiry thereof, by three years in the case of an assessment by SARS or two years in the case of self-assessment, where an audit or investigation relates to the doctrine of substance over form, the general anti-avoidance rule, hybrid instruments, or transfer pricing.
It is important to note that the prescription period may only be so extended by SARS prior to the expiry of the existing prescription period. The amendment also places an onus on a taxpayer to show why the existing prescription period should not be extended.
Reduced Assessments to Correct Errors
The proposed amendment was initially intended to limit the period upon which a taxpayer may request for a correction to six months. Thankfully, the limitation was not included in section 93 in the Act. The inclusion would have led to inequitable outcomes.
Section 93 (d) of the Act has, however, been amended to read that SARS may make a reduced assessment if SARS is satisfied that there is a readily apparent undisputed error in the assessment by:
- SARS; or
- The taxpayer in a return.
Section 93 (e) has been introduced and extends the circumstances upon which a taxpayer may request a reduced assessment to circumstances where a senior SARS official is satisfied that an assessment was based on:
- the failure to submit a return or submission of an incorrect return by a third party ;
- a processing error by SARS; or
- a return fraudulently submitted by a person not authorised by the taxpayer.
Whilst the retention of the time periods to request corrections is to be welcomed, SARS’ increased administrative powers to extend prescription periods is a cause for concern and a departure of a long-standing administrative procedure. Again, taxpayers are reminded of their rights under the Act as well as the Constitution.