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Estimated assessments are a legitimate tool in SARS’s arsenal, but their use must be balanced with the rights of taxpayers. The current trend suggests a tilt toward expediency over equity.
By STEFAN DIEDERIKS
In recent years, the South African Revenue Service (SARS) has intensified its use of estimated assessments – particularly in the realms of VAT and income tax for both individuals and corporates. While the legislative framework under Section 95 of the Tax Administration Act (TAA) permits SARS to issue such assessments when returns are not submitted or are deemed inadequate, the growing frequency and methodology of these assessments raise serious concerns about fairness, transparency, and due process.
The rise of the estimated assessment
Originally intended as a last resort to protect the fiscus, estimated assessments are increasingly being used as a default mechanism. Taxpayers – especially VAT vendors – are finding themselves on the receiving end of assessments based on assumptions rather than facts. SARS has been known to compare bank deposits to declared turnover and tax the difference, ignoring the commercial reality that not all deposits constitute taxable income.
This approach, while expedient for SARS, shifts the burden of proof entirely onto the taxpayer. It is not only administratively burdensome but also potentially prejudicial, especially when SARS fails to engage meaningfully with the taxpayer before issuing the assessment.
What taxpayers should watch out for
- Non-submission or incomplete returns: Failure to submit a return or respond to SARS’s requests for supporting documents can trigger an estimated assessment. Even if a return is submitted, if SARS deems it ‘inadequate’, it may still proceed with an estimate.
- Bank deposit comparisons: SARS often uses bank statement analysis to estimate turnover. This method is flawed and can result in inflated assessments, especially for businesses with complex cash flows.
- Lack of communication: Many taxpayers report receiving assessments without prior warning or adequate explanation. This undermines the principles of administrative justice and transparency.
- Short timelines: Taxpayers have only between 10 to 40 business days depending on the type of correspondence received to respond with accurate information to avoid finalisation of the estimated assessment. Extensions are possible but must be formally requested.
SARS’s objectives – and the risks
SARS’s aggressive stance is partly driven by its mandate to close the tax gap and increase revenue collection. With the introduction of auto-assessments and enhanced data analytics, SARS is better equipped than ever to identify discrepancies. However, this efficiency must not come at the cost of fairness.
The concern is that estimated assessments are becoming a ‘cash-grabbing’ norm rather than a tool of last resort. This undermines taxpayer confidence and risks eroding voluntary compliance.
How to engage with SARS effectively
- Maintain meticulous records: Ensure that all VAT and income tax submissions are supported by clear, reconciled documentation. This includes bank statements, invoices, and supporting schedules.
- Respond promptly: Always respond to SARS’s requests for information within the stipulated timeframes. Silence or delay can be interpreted as non-compliance.
- Request reasons: If you receive an estimated assessment, immediately request the reasons in writing. SARS is obligated to provide these under the TAA.
- Dispute strategically: If you disagree with the assessment, follow the formal dispute resolution process. This includes lodging an objection within 80 business days of receiving the reasons. Ensure your objection is well-motivated and supported by evidence.
- Seek suspension of payment: While the dispute is ongoing, you may request SARS to suspend payment of the disputed amount. This is not automatic and must be justified.
Final thoughts
Estimated assessments are a legitimate tool in SARS’s arsenal, but their use must be balanced with the rights of taxpayers. The current trend suggests a tilt toward expediency over equity. As tax practitioners, we urge SARS to uphold the principles of administrative justice and to engage more constructively with taxpayers.
For individuals and corporates alike, the message is clear: be proactive, be prepared, and don’t hesitate to seek professional advice. The cost of inaction—or poorly handled action—can be significant.
Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. While every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.
For any queries or further information, please contact:
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- Mansoor Salee, External Audit Director
Mobile: (+27) 82 454 4786
Email: mansoor@nexia-sabt.co.za
- Yousuf Hassen, Entrepreneurial Business Services Director
Mobile: (+27) 82 333 3376
Email: yhassen@nexia-sabt.co.za
Stefan Diederiks CA(SA), a Registered Tax Practitioner, is Entrepreneurial Business Services Director at Nexia-SAB&T.
