The tax administration act – where's the redress for taxpayers?

The Tax Administration Act, No 28 of 2011 (TAA) took effect on 1 October 2012..

At a recent TAA conference the first question asked was how taxpayers and advisers could get the South African Revenue Service (SARS) and officialdom to abide by timelines and to follow prescribed procedures. And what are the remedies should these be ignored?

Reference was made to the Tax Ombud. The 2012 Budget Speech announced that office as a "...low-cost mechanism to address administrative difficulties that cannot be resolved by SARS." The Minister of Finance has to appoint the Tax Ombud by 30 September 2013. The TAA deals extensively with the Tax Ombud in s14 – 21. However, tax practitioners have mixed feelings about its mandate and powers. One observed that the Tax Ombud "... is addressing very narrowly-defined administrative complaints but has no powers to compel SARS to do anything." Accordingly, there is no effective relief and taxpayers would still have to approach a court to compel SARS to administratively comply with the law. This same point was made at the TAA conference.

Internationally there are interesting examples of what could be done to give taxpayers some degree of redress. Australia has "The Scheme for Compensation for Detriment caused by Defective Administration" (CDDA Scheme). The CDDA Scheme is an administrative, not a statutory (legislative) scheme. It has been established under the executive power of s61 of the Australian Constitution. The scheme allows Government agencies to compensate persons who have experienced detriment as a result of an agency’s defective actions or inaction. Payments are discretionary, ie there is no automatic entitlement to a payment. The scheme is generally an avenue of last resort and is used only where there is no other viable avenue to provide redress.

The following constitutes 'defective administration':

• a specific and unreasonable lapse in complying with existing administrative procedures; or

• an unreasonable failure to institute appropriate administrative procedures; or

• an unreasonable failure to give to (or for) an applicant, the proper advice that was within the officer's power and knowledge to give (or reasonably capable of being obtained by the officer to give); or

• giving advice to (or for) an applicant that was, in all the circumstances, incorrect or ambiguous.

'Detriment' means quantifiable financial loss that an applicant (eg a taxpayer) has suffered. There are three types of detriment:

• detriment relating to a personal injury including mental injury (personal injury loss);

• economic detriment that is not related to a personal injury (pure economic loss); and

• detriment relating to damage to property.

Claims for the following types of losses would not be considered by the Australian Tax Office (ATO) under the CDDA scheme:

• claims for personal time spent resolving an issue;

• claims for stress, anxiety, pain and suffering or other emotional distress;

• claims for delay in receiving funds from the ATO where statutory interest has been paid;

• claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals, ie even where the taxpayer is ultimately found to have complied with his obligations;

• costs of putting in a claim or conducting a claim for compensation; and

• claims for taxation or other Commonwealth liabilities that have substantive review rights that can be or could have been pursued.

Financial losses having a direct connection to the action/inaction of the ATO and which give rise to a finding of legal liability or defective administration could, however, be compensated. These include:

• professional fees, where evidence of payment of such fees is provided and the fees are considered by the decision maker to be reasonable (the ATO makes this assessment);

• interest for delays in providing funds in cases where no statutory interest has been paid; and

• bank or other administrative fees a taxpayer has incurred because of the ATO's actions.

The ATO aims to acknowledge receipt of a claim in writing within three business days. Provided that all the required information supporting the claim has been provided, the ATO aims to process same within 56 days. The ATO publishes compensation statistics on its website. During 2011–2012 it paid 108 claims in full with the compensation amounting to AUD 155,547 (approximately ZAR 1.3m). 54 claims were partially paid and the compensation amounted to AUD 618,310 (ZAR 5.6m).

The Tax Administration Laws Amendment Bill was recently published. Taxpayers would certainly welcome seeing some redress mechanism incorporated into the TAA to provide for compensation in instances where TAA timelines and procedures are not complied with. The Tax Ombud could administer such a redress mechanism concurrently with its review of a complaint under s18 of the TAA (eg s18(e)). Giving individual taxpayers some compensatory redress would be a start.