Mere suspicion by SARS does not justify an assumption that the taxpayer has been fraudulent

Alan Seccombe, a tax specialist at PricewaterhouseCoopers, says that SARS shows no mercy to taxpayers who lodge false or intentionally misleading tax returns.
 
If it comes to light that a taxpayer has not, in his tax return, made full disclosure of all income, the Income Tax Act empowers SARS to issue an additional assessment in respect of the undisclosed income, and to impose additional tax (often called penalty tax) on that income. In the result, the taxpayer can end up having to pay triple tax on the undisclosed income. Non-disclosure of income is also a criminal offence, punishable by a fine or imprisonment.
 
In ITC 1821 SARS came to the conclusion, having examined the taxpayer’s bank statements, that the taxpayer had fraudulently (in other words, with deliberate dishonest intent) failed to disclose all her income, and levied additional tax of 100% plus penalties.
 
The taxpayer thereupon provided SARS with a detailed explanation as to why none of the contested amounts constituted income on which she was taxable. SARS refused to withdraw the additional assessments.
 
When the matter came on appeal before the Tax Court, the judge was scathing in his criticism of SARS’s handling of this matter, pointing out that SARS’s officials had not looked into the source of the funds that came into the taxpayer’s bank account, but had simply assumed that it was income on which she was taxable. The judge said SARS had had years to look into the truth of the taxpayer’s version of events, but had failed to do so, and had simply stuck to their disbelief in the taxpayer’s story.
 
The judge said that SARS had “acted in high-handed and reckless fashion” and its actions in this particular case “fall short of the standard of professional conduct that the public is entitled to expect of them”.
 
No evidence had been placed before the court, said the judge, to contradict the taxpayer’s version of events, and no case was put to the court that would justify the conclusion that the taxpayer had set out to defraud the fiscus.
 
The court set aside the additional assessment and ordered SARS to pay the taxpayer’s costs.