Revenue is necessary to boost the state coffers and no person or company is above the law.  But SARS has to approach this campaign in a procedurally and substantively fair manner.  When it comes to administrative fairness in tax issues, it’s a case of ‘what you don’t know, CAN hurt you.’

The Income Tax Act is not a single entity but a serial assembly of connected links.  It’s made up of a multitude of substantive issues called ‘tax charging provisions’, which are subject to procedural and administrative requirements.  The breaking of a link or a chain may have a symbolic meaning of liberationin other contexts, but not in respect of tax. So complicated is this helix, and so dependent on the correct execution of every procedure, that the entire process is as strong or compliant as the weakest link.

Substantive matters vs Procedural fairness.

The context

The Income Tax Act has been amended over a number of years and has not been consolidated since 1962.  When you consider how dynamic the world of finance, business and entrepreneurship is, it is unsurprising that there is a disconnect between current practices and the Act.  The Income Tax Act deals with the so-called tax charging provisions and related matters. For example, it will regulate which expenses may be claimed or whether a tax return can be classified in a certain way.  Some of the other prominent Acts (or other links making up the chain) when dealing with tax charging provisions are:

  • Transfer Duty Act
  • Estate Duty Act
  • Income Tax Act
  • Value-Added Tax Act
  • Skills Development Levies Act

So which one is the most important?

Traditionally, many of these statutes aim to deal with both substantive issues and tax administration and procedure.

Substantive matters

Substantive matters refer to, ‘the merits of a case with reference to the legal relationship between the taxpayer and SARS. It establishes the principles, defines the rights and sets the limitations under which taxpayers may transact, submit returns and classify transactions.’

Procedural fairness

This changed upon enactment of the Tax Administration Act, 28 of 2011 (the TAA).  The TAA covers the administration (procedural matters) of all tax Acts, other than the Customs and Excise Act – a specialised piece of statute on its own.

Procedural law are the sets of rules and methods employed to obtain one’s rights. It is contrasted with substantive law, and is the set of procedures for making, administering, and enforcing substantive law.

Tax procedural law is accordingly set out separately in the TAA.  Procedural fairness is further regulated by the Bill of Rights and the Constitution. More accurately under the ‘principles of administrative justice’, both falling under administrative common law and the Promotion of Administrative Justice Act (PAJA). Common law is the part of Law that is derived from custom, judicial precedent and case law, rather than statutes and enacted legislation.

Tax dispute resolution is usually a protracted and expensive exercise. One look at this process (click here)and you will understand why you need experts to guide you through the procedures.

So which is the more important?

Is it the procedural or substantive merits of a matter?  Well, neither actually.  The simple answer is that it is 50/50. Both are equally important.

Many tax practitioners focus on the substantive merits of a case, not realising the importance of procedural fairnesspertaining to their case.  They ignore the continuous and repetitive administrative injustice when it comes to following correct procedures and proper administration. The reality is that a matter could just as easily be won on procedural deficiencies as it could on substantive merits.

The proof is in the invalidation – a case study

One of the most recent testimonies to the importance of procedural fairness versus substantive merits in tax matters, is the case of IT13726. After an audit, an additional assessment was issued by SARS. During this process SARS failed to follow the proper procedure set out in section 42 of the TAA. Section 42 requires SARS to keep a taxpayer informed as well as follow certain time lines during the audit process. The court found that SARS’ failure to follow these proper procedures deprived the appellant of an opportunity to respond to any of the issues raised in the additional assessment. This is a breach of a taxpayer’s “right to be heard”.

The judge furthermore found that non-compliance with section 401 and section 422of the TAA was clearly unconstitutional, and the principle of legality was breached. The principle of legality is a constitutional principle, and inter alia requires SARS, in this case, to act in a procedurally fair manner. For this reason the court proceeded to set aside the assessment and invalidate it as it was constitutionally unsound.  In a case where the substantive merits did not even have to be argued, nor was the court required to make a finding regarding it, the case was decided purely on procedural fairness and SARS’ failure to follow proper procedures and administration. 


The effect of this case is that a lot of assessments stand to be invalidated for failure to follow proper procedures and for failure to respect a taxpayer’s right to be heard.

SARS finds it complicated too

There are very specific and particular proceedings prescribed by the Tax Administration Act.  SARS must follow the procedural regularities and administration prescribed by the Act, while it attends to the principles and limitations in substantive statutes. If, for example, SARS decide to disallow an objection where certain expenses were claimed against income by the taxpayer, but they do so out of the time periods set out in the procedures, they could very well be barred from doing so.

Rule 56 is but one stumbling block for SARS….

In prevailing practice, it appears that SARS are often unaware of the procedures that they need to follow and that their internal policies and guidelines get preference over the statutory procedural requirements.  There are very specific procedures prescribed regarding how to deal with objections, appeals, tax board proceedings, and even the tax court.  Should SARS fail to follow these procedures then, despite the substantive merits of a matter and whether tax charging provisions were properly applied, the taxpayer is most certainly in a position to invoke rules such as Rule 564 and dispose of the matter without even delving into the substantive merits.

The procedural fairness that is required to be present in the administration of substantive issues exists in tax statutes and in the Constitution, Administrative law and Common law. These Acts must be considered together and in liaison when determining whether proper procedures have been followed. There are a number of obligations where procedural deficiencies occur.

  • Section 333of the Constitution and PAJA, together with the common law and principle of legality further regulates procedural fairness.
  • SARS is required to act in a procedurally fair, reasonable and lawful manner.
  • SARS is always required to provide adequate reasons where a decision has been made, and failure to do so will also constitute adequate reasons for disallowing additional assessments.
  • Even without argument into the substantive issues, the administrative action concerned and the assessment could easily be set aside for failure to conform with the principles of administrative justice.

It’s no wonder SARS don’t always get their heads around all the Acts and Laws. You are also probably beginning to realise why it is almost impossible for taxpayers to know all their rights in terms of procedural fairness, never mind be equipped to challenge any procedural injustices. This is why it is important to use the services of an experienced tax attorney who specialises in matters where procedural elements seem lacking, and to obtain advice on your right of recourse that might exist.

1s40 – Explanation that SARS may conduct verifications, audits and inspections.

2s42 – Explanation of issuing revised assessments. SARS must provide a letter of audit findings, to which the taxpayer is allowed to respond.

3s33 – Is from the Constitution, stating all taxpayers are entitled to administrative action from SARS which is procedurally fair, reasonable and lawful.

4Rule 56 – A Rule 56 application is a formal approach to the Tax Court to take a default judgment against SARS, to quash the assessments raised against the taxpayer if SARS have ignored their responsibility and duty to respond to key submissions.

Authors: Attorney, Schalk WP Pieterse specialising in Administrative law, Tax law and Constitutional law and Prof and Dr Daniel N Erasmus, an international tax attorney who holds a PhD in tax and constitutional law.


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