A fundamental reason for the existence of the rules of prescription in our tax lawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... is to provide a taxpayer with certainty as regards its tax position. It is therefore important that such rules are clear and not subject to unfettered discretions. In disputes with the Commissioner for South African Revenue ServiceThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... (“the Commissioner” or “SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently...“), prescription is a powerful defence available to compliant taxpayers, allowing them to bring finality to their tax assessmentsA tax assessment is a formal determination made by a tax authority to calculate the amount of tax an individual or entity owes. It is a comprehensive evaluation based on financial records, declared income, expenses, deductions, and any applicable tax laws or regulations. Tax assessments may arise from routine self-assessments by taxpayers, or they may be conducted by revenue authorities....

For some time, amendments to the prescription provisions have been on the cards. SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... has motivated for such amendments due to the fact that it has been involved in protracted information entitlement disputes which it alleges are being used as a delaying tactic to force audits closer to the end of a prescription period.  SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... also alleges that it has difficulty finalising certain audits within prescription periods due to their sheer complexity.

There are certain far-reaching amendments to the rules of prescription which have been proposed in clause 51(c) of the Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Laws Amendment Bill No. 30 of 2015 (“the Bill“), introduced by the Minister of Finance to the National Assembly on 27 October 2015.

Current law

Section 99 of the Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Act No. 28 of 2011 (“the TA Act“) currently regulates prescription for all tax types.

Section 99(1) provides that an assessment cannot be raised:

• for income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable..., three years after the date of an original income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable...tax assessmentA tax assessment is a formal determination made by a tax authority to calculate the amount of tax an individual or entity owes. It is a comprehensive evaluation based on financial records, declared income, expenses, deductions, and any applicable tax laws or regulations. Tax assessments may arise from routine self-assessments by taxpayers, or they may be conducted by revenue authorities...;
• for self-assessment taxes, such as value-added tax, five years after the date when the taxpayer self-assessed or paid (as the case may be);
• if the amount which should have been assessed under the preceding assessment (or paid as in the case where no return is submitted) was not assessed (or paid as the case may be) due to the practice generally prevailing at the time of the preceding assessment (or date of payment as the case may be);
• in respect of a dispute which has been resolved.

Section 99(2) provides that prescription will not apply to the extent that:

• in the case of assessment by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently..., the fact that the full amount of tax chargeable was not assessed was due to fraud, misrepresentation or non-disclosure;
• in the case of self-assessment, the fact that the full amount of tax chargeable was not assessed was due to fraud, intentional or negligent misrepresentation or intentional or negligent non-disclosure of material facts or the failure to submit a return or, if no return is required, the failure to make the required payment of tax;
• SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and the taxpayer agree;
• it is necessary to give effect to a resolution of a dispute or a judgment pursuant to an appeal where no further right of appeal.

The current prescription provisions are clear, well-known and do not contain any unilateral powers of extension for the Commissioner.

Proposed amendments

Clause 51(c) of the Bill proposes the insertion of two new sub-sections to section 99 of the TAA, namely sections 99(3) and (4) and provides (with our emphasis) as follows:

It is apparent from the above proposed amendments that, unlike currently, the Commissioner will be given fairly wide unilateral powers to extend the prescription periods in certain circumstances.

The power to extend the prescription period in the proposed section 99(3) is not limited to any specific time period and an extension of time is permitted by a period “approximate to a delay”. Although the term “approximate” is not defined, by tying the extension to an event appears to impose some kind of limit on the Commissioner’s power to extend the prescription period.

In addition, the proposed section 99(3)(a) allows the Commissioner to unilaterally determine the extension of time with reference to a taxpayer’s provision of “relevant material”. Due to the fact that what constitutes “relevant material” is also something which is determined with reference to the opinion of SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... as to what is foreseeably relevant, the determination of an extension of prescription period by the Commissioner in these circumstances involves a fairly wide discretion for the Commissioner. This leaves the taxpayer in an uncertain position and has the effect of watering down the current prescription rules.

The proposed section 99(4) allows the Commissioner to unilaterally extend prescription periods by significant time periods where an audit or investigation relates to certain complex issues. This proposed amendment leaves the ball entirely in the Commissioner’s court as regards the determination as to whether an audit or investigation involves these issues. The proposed section makes no reference as to what stage of the audit or investigation such a decision may be made by the Commissioner. It appears that the Commissioner, accordingly, has free reign to extend the periods for prescription any time during an audit or investigation, even at a stage where it may not yet be certain whether any one of the issues listed in the proposed section 99(4) are indeed of application. If prescription is extended on this basis and a taxpayer is assessed on bases other than those contained in section 99(4), there may be arguments open to a taxpayer that the extension of prescription was invalid.

The proposed amendments to section 99, as they currently read, are far-reaching and will have a significant impact on prescription, which is currently a very strong defence for compliant taxpayers. Although it is acknowledged that the complexity of matters gives rise to very lengthy audits in many cases, it is important that a balance be found to deal with this. The proposed amendments certainly have the ability of resulting in the normal prescription periods being applicable in significantly fewer cases. A taxpayer bears the onus of proof in tax disputesTax Disputes arise when there is a disagreement between taxpayers and tax authorities regarding the interpretation or application of tax laws. These disputes may concern various issues such as the accuracy of a tax return, the eligibility for tax deductions or credits, the correct amount of tax liability, or transfer pricing adjustments. Tax disputes can lead to lengthy legal proceedings... and in light of the fact that when there is a SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... audit, there will now be a possibility of the extension of prescription periods, and it is important for taxpayers, during the early stages of an audit, to take proactive steps to gather both documentary and oral evidence in support of any case which may have to be defended in a dispute. Since the introduction of the TAA, and even more so now, it is therefore critically important for a taxpayer to take proper legal advice as to its rights and obligations early on in a SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... audit so as to ensure that it adequately protects itself and has the appropriate defences available to it should a dispute arise.