Many of the tough tactics being used by the South African Revenue Service (SARS) to track down tax cheats are unacceptable and could be challenged in court, Daniel Erasmus, a tax attorney, says.
Erasmus, a senior partner at Erasmus Korten Hiepne, was speaking at the ipac/Personal Finance Investors Club in Johannesburg this week.
Unacceptable practices include intrusive, "never-ending" questions, initiating civil and criminal proceedings at the same time, and certain evidence-gathering strategies.
Erasmus says that while SARS has a legitimate job to do, you also have rights. SARS has to behave in a manner that is consistent with the Bill of Rights in the Constitution.
"The Bill of Rights has a limitation clause when it comes to legislation that can bypass your human rights. If it is a law of general application, and it is found in other democracies, your human rights can be curtailed, to ensure you pay your tax and do not commit tax fraud," Erasmus says.
"However, conduct which is inconsistent with the Constitution is invalid. The conduct of SARS must, at all times, respect all human rights, which include the right to privacy, fair administration, not to give self-incriminating evidence, a fair trial, and the right to information.
"If you are subjected to an audit, before an assessment is released, the audit results should be made available to you first, so that you can respond. Only once your representations have been received, can the assessment be issued. Only when your representations are rejected can a civil judgment or attachments of property begin; and only then can SARS ask you to pay now and argue in court later," Erasmus says.
The tax courts can take up to five years to hear a case, which explains why SARS has a policy of pay now and argue later. But, if you believe that SARS has not followed the proper procedures, the High Court can review SARS's conduct within a much shorter period. You may get a cost award against SARS if your case is successful. The only drawback is that it is expensive to go to the High Court.
SARS must also exercise discretion when it demands that you pay now and argue later. SARS is obliged to exercise discretion in your favour if you can prove that paying now will cause hardship. This may include that you or your business may become bankrupt; that a number of jobs will be lost; and that you have sufficient cash flow to pay off SARS over time.
If SARS suspects that you are not paying your due, you could be sent a "Lifestyle Questionnaire" or a "Payroll Questionnaire", or become subject to a tax audit.
But Erasmus says SARS cannot ask you to fill in such a questionnaire unless it can show good reason, such as if you drive a Lamborghini but claim to earn very little.
If you are sent a questionnaire, you have the right to ask SARS "Why me?" and SARS must provide an answer. You have the right to know why you are being audited and to be furnished with all of the information that SARS may have on you.
Erasmus says information that you have shared with SARS that may be self-incriminating cannot be used against you if you are prosecuted.
"Problems arise when someone other than an attorney (say, an accountant) has given evidence for you, because it won't be classed as compulsory self-incriminating evidence, unless the accountant has a written mandate from you to act on your behalf and not as an independent. With an attorney, the client privilege kicks in, keeping you safe."
The policy of pay now and argue later also applies to SARS when it comes to refunds. SARS must have good reason if, after paying you, it wants to re-audit you.