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When the Minister of Finance announced in the 2016 budget speech that the ability to claim input tax credits within 5 years will be revisited, taxpayers and tax practitioners alike waited with great anticipation to see if the proposal found its way into the draft bills so as to comment on why this should most definitely not happen.

When the 2016 Draft Tax Administration Laws Amendment Bill was published for public comment, the Draft Memorandum of Objects on that draft bill indicated that:

“It is proposed that an input tax deduction be limited in certain instances to the tax period in which the time of supply occurred.”

However, most stakeholders were left scratching their heads as the actual draft bill proposed no amendments to the proviso to section 16(3) of the VAT Act and which allows the 5 year time period to claim input taxes. The only proposed changes in the actual draft bill was to reinsert section 44 into the VAT Act.

The confusion was however eventually put to rest with the response document from National Treasury and SARS in which the following statement was made:

“The Memorandum of Objects will be amplified to clarify that the proposed amendment does not limit input tax claims to the tax period in which the supply occurred…”

Accordingly, as it stands at the moment the 5 year period to claim input tax is not being changed.

Aggrieved taxpayers are provided with a legislative mechanism in order to resolve disputes with SARS, the latest version of which came into effect on 11 July 2014 and was promulgated in terms of section 103 of the Tax Administration Act, No.28 of 2011. These legislative mechanisms are commonly referred to as “the tax dispute resolution Rules” and they were put in place in an effort to align with international trends which seek timeous and fair resolution of tax disagreements with the fiscus.

The tax dispute resolution rules prescribe various time periods to which both taxpayers and SARS must adhere in order for a dispute to be finalised efficiently and fairly. An example of such a time period is contained in Rule 7(1) of the tax dispute resolution rules, which provides that taxpayers are afforded 30 business days (from date of assessment/ reasons for an assessment by SARS) within which to lodge an objection to such an assessment. Where a taxpayer does not comply with this time period the dispute may not progress or may never be resolved.

A further example is contained in Rule 9 of the tax dispute resolution rules which places a specific obligation on SARS with regard to when SARS should make a decision on objection. Such a decision must be made within 60 business days of the delivery of an objection by a taxpayer. However, taxpayers are increasingly placed in a position where SARS do not adhere to this time period with seemingly no consequence for SARS.

While it can be appreciated that SARS receives thousands of objection on regular basis, it is also not administratively fair towards taxpayers to plainly accept non-compliance with the tax dispute resolution rules. So, what can you do about it?

Where the time periods provided for in the Rules are not be complied with by SARS, an aggrieved taxpayer may address the issue with the relevant SARS branch and/or SARS’ call centre and where not resolved, the issue will have to be reported to SARS’ Complaints Management Office (CMO), which has replaced the SSMO office within SARS. Should the CMO not be able to resolve the matter, the taxpayer may, only after a taxpayer has exhausted SARS’ internal administrative complaints resolution process (unless a taxpayer is able to demonstrate that there are compelling circumstances as to why the Tax Ombud may be approached directly), approach the Tax Ombud for further assistance.

Approaching the CMO and/or Tax Ombud, whilst mostly effective to get administrative issues resolved, can be extremely time consuming and where, for example, an objection should have been finalised already, going through all these channels just to get timeous feedback on an objection is counterproductive.

While litigation should always be a last resort, it is unfortunately sometimes the fastest way in getting non-compliance with the rules resolved and in the case of non-compliance by SARS with the tax dispute resolution rules, applying for default judgment is a sure fire way to get SARS’ immediate attention.

Tax litigation is however complex and full of technical and procedural landmines which can trigger disastrous results for your case if stepped on. It is therefore recommended that a competent team specialising in tax dispute resolution be consulted for assistance in calling SARS to action om missed deadlines.

SARS recently changed their dispute process on e-filing to include additional functions such as allowing taxpayers to request suspension of payments online or submitting a request for remission of interest and admin penalties.

The system furthermore compiles the DISP01 on your behalf and only requires the taxpayer to select the amounts under dispute and to provide descriptions in the ‘Grounds for Dispute’ and ‘Reasons for Late Submission’ blocks where applicable.

We herewith list some issues experienced with the new system on a practical level:

Grounds for Dispute to be completed in full

Generally together with the DISP01 form the taxpayer or tax practitioner acting on behalf of the taxpayer, will submit a comprehensive Grounds for Objection letter together with the supporting documents.

As the grounds on which the objection is based are described in detail in the accompanying grounds for objection letter, taxpayers often only refer to the latter referenced letter in the ‘Grounds for Dispute’ field on the form. SARS has however indicated that the taxpayer should in short include the reason for the objection as well the grounds on which it is based and cannot only make reference to the supporting document. Where taxpayers do not comply with the request, SARS have warned that such objections may be declared invalid.

Assessment Results

When making the selection of which amounts the taxpayer is objecting to on the prescribed DISP01 form, the system collects these amounts as well as their SARS source codes from the latest assessment. This amount is referred to as the ‘Dispute Amount’ on the DISP01 form. On a practical level, the system often either does not display any values under the relevant SARS source codes, despite income disclosed under the source codes on the assessment or displays the incorrect amount.

As taxpayers are unable to change the incorrect ‘Dispute Amount’ blocks on the DISP01, the objection is to be submitted as is. Despite bringing the system error to SARS’ attention on the DISP01 form, SARS declares the dispute as invalid due to the incorrect amount displayed in the ‘Dispute Amount’ blocks and steps need to be taken for SARS to treat the objection valid.

Limitation on Number of Objecting Source Codes

The taxpayer is only allowed to object to five items per objection as the new system limits the number of SARS source codes when completing the DISP01 form. Where there are more than five items in dispute, the taxpayer should wait for the finalisation of the first objection and only thereafter submit another objection against the remaining incorrect source codes. This often results in the later objection being declared invalid as a result of being late and steps need to be taken to for SARS to treat the objection as valid.