Sars's information gathering
Section 74A of the Income Tax Act, No 58 of 1962 (the ITA) is probably the most applied section when the South African Revenue Service (Sars) requires a taxpayer or third party to provide it with information. [Section 57A is the corresponding section in the VAT Act, No 89 of 1991.]
Section 74A reads: "The Commissioner or any officer may, for the purposes of the administration of this Act in relation to any taxpayer, require such taxpayer or any other person to furnish such information (whether orally or in writing) documents or things as the Commissioner or such officer may require".
Section 74(1) of the ITA contains wide-ranging definitions for 'information', 'documents' and 'things'.
The phrase 'for the purposes of the administration of this Act in relation to any taxpayer' is also defined in s74(1). It means the 'obtaining of full information' in relation to, for example, ascertaining the correctness of any return or information in Sars' possession, the determination of the liability of any person for any tax, the collecting of any such liability, and ascertaining whether an offence under the ITA has been committed.
Despite the wide ambit of the above-mentioned concepts, disputes regarding the legality of Sars' information gathering efforts and its entitlement to sensitive taxpayer-related information occur regularly.
The arguments normally raised are, firstly, the person in respect of whom Sars is requesting information should actually be a 'taxpayer' (that is, someone already on the Sars register); and secondly, unless Sars can specifically identify the taxpayer 'in relation to' whom it is requesting the information, Sars would not be entitled to such information under s74A.
The Tax Administration Bill (TAB) that will soon become law substantially expands Sars' information gathering powers. Apparently Sars got fed-up with all the tussles regarding the scope of its information gathering powers. The Memorandum accompanying the TAB (at p185, paragraph 2.2.5) states: "Sars' information gathering powers are substantially supplemented or extended by the TAB. This is essentially to address the problem that too many requests for information by Sars result in protracted debates as to Sars's entitlement to certain information".
Section 1 of the TAB defines 'administration of a tax Act' by simply referring to s3(2). That section, to a large degree, describes the concept in similar terms to s74(1) of the ITA.
The crucial difference is, however, that 'administration of a tax Act' as defined in s3(2) also empowers Sars to "obtain full information in relation to ... a taxable event." Section 1 of the TAB defines 'taxable event' as 'an occurrence' which affects or may affect the liability of a person to tax.
Furthermore, s3(2)(c) allows Sars to obtain full information to 'establish the identity of a person for purposes of determining liability for tax'.
The extent to which Sars' information gathering powers have really been expanded is also evident from Chapter 5 of the TAB.
In terms of s46(1) Sars may for purposes of the 'administration of a tax Act' (see above) "in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that Sars requires".
The following is noteworthy:
- Sars does not need to specifically identity the taxpayer in respect of whom it seeks information, as long as such taxpayer is 'otherwise objectively identifiable';
- Sars' information request could either be addressed to the taxpayer or to 'another person', for example a bank, insurance company, credit bureau.
- 'Relevant material' is defined in s1 of the TAB as "any information, document or thing that is forseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing that a tax offence was committed";
- 'Information', 'document' and 'thing' are all defined in s1 of the TAB in very wide terms (stretching even further than under the equivalent ITA definitions).
The ambit of 'relevant material' that could be required by Sars under s46(1) is extremely wide seeing that it also includes any information/document/thing that could be 'forseeably relevant' to Sars for a variety of purposes, for example tax risk assessment, assessing tax, collecting tax, showing non-compliance with a tax Act.
In many instances it would be virtually impossible for a third party from whom information is sought, to determine whether such material might, or might not be, 'forseeably relevant' in relation to something as opaque as tax risk assessment (to be undertaken by Sars).
Section 46(2) further broadens Sars' information-gathering powers by empowering a senior Sars official (defined term) to 'require relevant material in terms of ss(1) in respect of taxpayers in an objectively identifiable class of taxpayers."
A senior Sars official could conceivably require a bank to provide Sars with a spreadsheet listing all clients with fixed deposits of more than R10m, alternatively all clients that have mortgage loans in respect of residential homes valued at more than R20m
All that s46(6) requires is that the "relevant material required by Sars ... must be referred to in the request with reasonable specificity."
The TAB, without doubt, substantially expands the information-gathering powers Sars will have in future.
What does Sars intend doing with all the information?
In its Strategic Plan 2012/13 - 2016/17 (at p 25) Sars talks of 'becoming data and information rich' and then states: "By increasing and integrating data from multiple sources, Sars will increasingly be able to gain a complete economic understanding of the taxpayer and trader across all tax types and all areas of economic activity. By moving from a transactional to an economic view of the taxpayer and trader, Sars will be able to detect inaccuracies in declarations as well as to identify those who have attempted to stay outside the tax net, but at the same time provide a more appropriate service".
Under the TAB both taxpayers and third parties should expect increasing information requests from Sars.
The real difficulty will be to evaluate the 'relevancy' of the information requested by Sars taking into account how broadly the TAB couches a concept like 'administration of a tax Act'.
Phrases like 'may affect', 'forseeably relevant' and 'reasonable specificity' could mean different things to different people - it depends on which side of the fence you are.
Maybe the debates that so irritated Sars in the past have only started ...
*Johan van der Walt, director, tax, Cliffe Dekker Hofmeyr