‘Dismal’ Sars taken to the cleaners in court dispute over R8.4m tax bill

After being slapped with an R8.4m tax bill, a company in the Western Cape followed the letter of the law in its attempts to challenge the assessment.

The SA Revenue Service (Sars), by contrast, failed “egregiously” and “dismally” in its obligations, according to a tax court judge.

After repeatedly missing deadlines and telling lies, said Judge Judith Cloete, when the matter reached court Sars ended up arguing against the defence it had mounted in its papers.

The unnamed company that scored a legal victory over Sars commissioner Edwards Kieswetter, who was named as the respondent, told the court the tax authority's conduct had threatened its existence and the jobs of 50 employees.

Sars' repeated decisions to declare the company non-compliant for tax purposes during the two-year dispute left it unable to get export permits, jeopardised credit facilities with two banks and disqualified it from government funding to attend international trade exhibitions.

Cloete's judgment said the saga began in March 2020 when Sars told the company it had audited its tax returns from 2016 to 2018 and found short-term insurance premiums had been incorrectly treated as an expense rather than an asset, leading to a demand for R8.4m.

The company asked Sars the reasons for its conclusion but it failed to provide them or to ask for extra time until 16 days after the deadline.

“It finally delivered its reasons on the very last day of the extension which it unilaterally imposed, September 7 2020. This was despite the fact that it had raised the additional assessments as a result of its own audit almost six months earlier,” said Cloete.

The company then objected to the assessment, and Sars missed its deadline to issue a decision by 10 days. The company appealed against the decision — a partial disallowance of the objection — and again Sars ignored the deadline to respond.

An official in Sars' tax court litigation unit eventually told the company this was “due to a backlog as a result of Covid-19, lack of capacity and no filling of vacancies across Sars”, and begged for more time.

Sars' next deadline was also missed and the authority asked for another 21 days, saying counsel had been briefed and the matter allocated to a new official.

“The taxpayer, which had finally had enough, refused the request,” said Cloete, and told Sars it would have to go to court if it wanted more time.

In any case, said Cloete, “the notification to the taxpayer that Sars “recently briefed counsel” was untrue.

“To sum up, Sars has displayed a persistent disregard for the time limits prescribed in the rules ... Also significant is Sars’ misleading of the taxpayer ...”

When it came to considering the tax dispute, Cloete said the only “reasonable inference” from Sars' contradiction of its own argument in court was that it “lacks prospects of success on the merits on its defence as currently formulated”.

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