“Pay now, argue later.” This sums up the power the South African Revenue Service (Sars) has when it comes to making taxpayers comply with the nation’s tax laws.
The office of the tax ombud offers redress when taxpayers have a complaint against the taxman about a procedural or administrative matter.
“Legislative challenges”, however, are the Achilles heel in the ombud’s quest to be fully independent of Sars, according to its latest annual report, creating the impression that the lines between it and Sars are blurred.
The current ombud, Judge Bernard Ngoepe, is lobbying hard to change this through proposed amendments to current tax administration laws. These include giving the ombud more power to initiate investigations of emerging or systemic issues that it might identify in Sars.
Currently, the ombud’s office does not have the authority to initiate these without a complaint from a taxpayer, Ngoepe said. He hopes that this and other issues directly affecting the ombud’s independence can be addressed with the proposed changes in the Tax Administration Laws Amendment Bill.
Appointments to the ombud’s office must currently be made in consultation with the Sars commissioner, and the office’s funds are paid out of the Sars budget.
Included in the Bill are proposals that will give the office greater power to appoint staff without the need for consultation and a ring-fenced budget.
The ombud’s office is also seeking more power to review emerging issues or trends at Sars’s, but the current formulation in the Bill that allows for this needs changing, said Ngoepe.
A new clause in the Bill will enable the finance minister to request such a review. But the ombud will continue to “enjoy no initiative” under this proposed change, he said. As a result, his office is still discussing the formulation of the new subsection of the Bill.
The timing of refund payments to taxpayers is an example of something that needs to be looked into.
Eric Mkhawane, the chief executive of the ombud’s office, said there is the perception that Sars withholds some refunds at the end of the financial year to meet its targets. The ombud’s office cannot address this perception without the power to initiate an investigation, he said.
Similar powers to begin such reviews have been given to tax ombuds in other jurisdictions, such as in Canada and the United States, and, Mkhwane added, there are “no compromises” placed on these powers elsewhere.
The tax ombud was established in 2013 and has grown to a staff of about 30 people. It has yet to establish provincial offices but it takes cases from all parts of the country. The office receives about 2000 complaints a year, from individuals and companies, large and small, Mkhawane said.
Not all the cases brought to it fall within its mandate, as the office cannot rule on matters such as tax policy or legislation. In addition, taxpayers must first exhaust Sars’s internal complaints mechanisms before they can take a matter to the tax ombud.
Nevertheless, of the complaints it has heard, the ombud has found in favour of the taxpayer in almost 80% of the matters, he said.
Although the ombud’s findings are not binding on either Sars or the taxpayer, in almost all cases Sars has implemented the ombud’s recommendations, he added.
Another proposed change to the current law will require that, when the ombud’s recommendations are not heeded by the taxpayer or by Sars, written reasons must be given to the ombud, which it can include in a report to the finance minister.
Although tax practitioners, accountants and other members of the industry have called for the tax ombud’s decisions to be binding, Ngoepe is not convinced this would necessarily be beneficial to taxpayers. It could raise issues of legal representation and complicate a process intended to be as simple as possible.
“But we have tried to strengthen our arm, nevertheless,” he said.