Author: Nico Theron (CTA) SA and Hopolang Mollo (Tax Consultant)
Can SARS take collection steps against taxpayers who are victims of fraud?
Prevention is better than cure. Maybe, just maybe, that riveting animated training course sent through by Mark from IT on phishing and vigilance against official impersonation may have prevented all of this. Hindsight, in this instance, is 15/20 because, as stated by Commissioner Kieswetter, cybercrime is “pervasive” but, more importantly, “sophisticated” and “constantly evolving”. Ergo, the growing trend in e-profile hijacking.
The South African Revenue Service (SARS) provides avenues for reporting tax crimes such as suspicions of digital fraud. Unfortunately, most taxpayers only become aware that they have been victims of these crimes upon issuance of additional assessments by SARS.
Now what? There is a man in the shadows who has hijacked your e-filing profile, claimed an exorbitant fraudulent input tax claim, changed the taxpayer bank details to their own, and received the refund from SARS (oddly, these are typically the fastest refunds to be paid out, but I digress) and SARS is sending you, the victim, final demands? Threatening third-party collection steps to retrieve what is rightfully theirs?
SARS’ claim
In terms of section 92 of the TAA, in the event, SARS is satisfied that there is an incorrect assessment to their own or the fiscus’ prejudice, they must issue an additional assessment.
The keen reader, and tax enthusiast, may have noted that section 92 of the TAA, does not make reference to the taxpayer having been the one to have caused the prejudice to the fiscus, in comparison to section 222 of the TAA (Understatement penalty) which specifically indicates that the prejudice to SARS or the fiscus has to be pursuant to a taxpayer’s conduct.
Plainly put, the only requisite for issuing an additional assessment is SARS’ satisfaction that an assessment incorrectly reflects the law to their or the fiscus’ prejudice. Whether the incorrect assessment was caused by the taxpayer or the scammer is arguably, unfortunately, irrelevant. Once assessed in terms of section 92, SARS is compelled, in terms of section 96 of the TAA, to give the taxpayer notice of such assessment.
The issue of a notice of such additional assessment to the taxpayer brings about the obligation to pay the tax so assessed[1] and if there is an obligation to pay, well then, collection steps will probably follow.
There are, however, procedures in law which SARS has to adhere to in order to ensure that the manner in which the taxpayer is being engaged is administratively and procedurally fair.
The taxpayer’s remedy
Assume, then man in the shadows has impeded the taxpayer’s ability to access its e-filing profile and, consequently, the taxpayer is oblivious to the fact that they are the subject of an audit and eventually misses the opportunity to make its submissions on the return being fraudulently filed under section 42(3) of the Tax Administration Act No. 28 of 2011. The now “obstructive” taxpayer has missed their audi alteram partem window, the audit case is now finalised, and the prescripts of Chapter 9 (i.e. objection and appeal) of the TAA become effective.
The question of whether the assessment raised is lawful, i.e. whether the prescribed procedures were followed in terms of the notice of assessment issued etc is relevant for purposes of disputing the assessment because realistically, that may be where the taxpayer’s matter is heading – at least insofar as the dispute is one of the taxpayer’s obligations for the tax under the TAA is concerned because there can be no gainsaying the fact that, in the example given, the input tax fraudulently claimed is indeed not claimable.
Other remedies under the TAA?
In 2023, SARS introduced a mechanism on e-filing for the submission of reduced assessment requests. To be clear, the submission of a reduced assessment request has always been a remedy available to taxpayers – one known to be more “informal” than the submission of an objection and typically, eventually, an appeal but SARS introduced the mechanism for submission of same on e-filing, last year, streamlined the process, which had historically been difficult to submit, and gave the remedy the much deserved recognition as a resolution method.
This may sound too good to be true, not neccsarily because it is, but rather because there is a “catch” of sorts when the course of action sought by a taxpayer is a reduced assessment request. The catch being that the matter, insofar relevant here, to be decided on has to be either, plainly put, “obvious” (section 93(1)(d) of the TAA) or be caused by a return fraudulently submitted by a person not authorised to do so (section 93(1)(e)(ii) of the TAA) in order to secure a reduced assessment.
Insofar as the issue of obviousness is concerned, suffice it to say that it may indeed be obvious that the return which caused the incorrect refund to be paid was fraudulently submitted, but that does not negate the fact that the refund was nevertheless incorrectly claimed. In fact, the obviousness of the fraud highlights the obviousness of the incorrect claim. Stated differently, getting a reduced assessment under section 93(1)(d) does not turn on whether the fraud was obvious but rather, whether SARS’ disallowing of the erroneous input tax claim was obviously wrong (which it obviously won’t be).
Section 93(1)(e)(iii) may seem like the knight in shining armour. But then, on proper interpretation of that section, it cannot be of assistance in these circumstances. You see, section 93(1)(e)(iii) can be applied where (a) there is an assessment that (b) is incorrect and (c), is incorrect because of a fraudulent return. In the case of a fraudulent input tax claimed being reversed by way of additional assessment, the additional assessment is not incorrect insofar as it seeks to reverse the input tax claim because the input tax is obviously not claimable. Further still, the additional assessment was not caused by the fraudulent return. It was the original assessment that was caused by the fraudulent return and the challenge will not be against the original assessment.[2]
What perhaps, about section 98 of the TAA? That section allows SARS to withdraw an assessment if that assessment was, for example, made on the incorrect taxpayer. Where the man in the shadows claims money from SARS, illegally, under your name, surely the assessment to fix that prejudice to SARS ought to be raised on him (i.e. the fraudster) – being, arguably, the correct taxpayer? Section 98 also conveniently creates the mechanism to fix the taxpayer’s account, so to speak, by allowing SARS to agree an assessment with the victim. Circumstances dependent, it could very well be section 98 that saves the day for the taxpayer.
What is clear from the above is that successfully disputing or challenging tax raised in assessments in circumstances where fraud was perpetrated is not as obvious and straightforward as one may be inclined to think. Circumstances-dependent, careful thought must go into such a challenge because “it was a fraud” is likely to fall short of taking care of the problem.
[1]Singh v CSARS 65 SATC 2023 and Top Watch (Pty) Ltd v CSARS 80 SATC 448
[2] See Theron, N & Louw C.2024. Practical Guide To Handling Tax Disputes, Lexis Nexis, Durban.
