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Can Alternative Dispute Resolution provide a solution to tax collection issues? Our panel of experts deliberate

PROBLEMS suffered by SARS under the previous government have been under the spotlight in two crucial national inquiries, but another troubling aspect of the national tax collection system came in for some tough talk at Juta’s second Talking Point, on Wednesday 14 November 2018. 

CHANGES to the SARS collection procedures via e-filing may have streamlined the process, but judging from the experts, tax practitioners and others who had their say at the Juta event, the tax-paying public is now even more unhappy than before. And we are not talking here about the unhappiness that comes from paying tax at all. Rather it is the fact that for many people, arriving at a fair – and even satisfactory – tax assessment has become more difficult than ever.

The Juta event was billed as a discussion on ADR: was it working properly as one of the many forums where the public may question tax assessment? But much of the focus in the debate shifted to an even more fundamental problem experienced by tax professionals and ordinary tax payers: the fact that the e-filing system has completely removed human contact between SARS and the people from whom they collect revenue.

Computer-generated emails, the standard method of communication between SARS and tax payers as well as their consultants, are vague and overbroad. They often refer to documents that the tax payer has already submitted or that are not relevant to the case and it is not possible to reach any actual SARS person who can unravel the mystery and explain what is needed. Perhaps that sounds like a small matter, but in tax collection when providing the correct documentation is critical, obfuscation like this leads to major frustration all round.

Perhaps the most alarming of all stats presented by the speakers came from the CEO of the office of the tax ombud (OTO), Eric Mkhawane and underscores the problem. He said that of all the matters dealt with through the ADR process of SARS, an incredible 98 percent should not have been there at all. According to OTO’s research, in virtually every ADR case the facilitator identified that the problem boiled down to inadequate document exchange. The facilitator then enabled this to take place, so that the actual documents needed by SARS were identified and then provided by the tax payer.

Just two percent of the cases fell outside this category and merited more discussion on matters of principle and interpretation relevant to the particular case. Given these stats, “it seems that ADR is not being used for its intended purpose,” Mkhawane said.

The obvious question is why the matter of document exchange is only sorted out when the parties reach the comparatively advanced stage of ADR. You would think that the basic issue of what documents an assessor wants from a tax payer could be easily resolved: but not so, when the only method of communication is a computer-generated message that is not specific to the particular case.International tax expert, UCT professor Jennifer Roeleveld, held up Australia as an example of how the communication block could be removed. The system there allows the assessor and the tax payer to communicate directly and deal with the actual problem that might exist, as it arises. They don’t have to wait for intervention at a much later stage, like the ADR phase in SA, to establish what documents might be needed or mislaid.

She said “case conferencing” was the standard way of handling tax problems. The much-respected Australian system is based on the principle of seeking an early, convenient settling of issues. Unlike the SARS position, settlement is not permitted where it is simply an easy and convenient way of resolving a situation.

This is another of the main issues to emerge in the discussion: rather than viewing the ADR process as a way of resolving legitimate questions of principle, it is seen by SARS as a forum to drive a settlement.

In the view of Johannesburg advocate Kevin Burt, SARS invariably prefers settlement as an option. But when the facilitator – routinely, a SARS official – is set on extracting a certain amount of money from the taxpayer in exchange for not being pursued, this “is not conducive to principled resolution of tax disputes.”

In other words, tax payers and their professional representatives want to understand the thinking of an assessor or of SARS more generally, and, having grasped the implications, to be able to plan for future tax returns.

Explaining more details of the Australian model, Roeleveld said that case conferencing started very early on in any dispute, with a facilitator who has no interest in the case present to hear the views of the assessor and the tax payer. It is done face to face or on the phone. The next step would be to bring in a mediator who helps the two sides clarify their position, and then present it to each other. This is a particularly useful step where one side or the other has difficulty in explaining a problem.

She said that this system was much more conducive to taxpayers feeling satisfied than in SA, “because they believe they are being dealt with fairly” by the tax authorities. In SA, by comparison, SARS acts as though taxpayers are the “enemy”, and takes the approach that “we don’t compromise with the enemy”. 

She said she hoped that this attitude by the SA tax authorities would change as SARS changes top management, but that until now the attitude had been one of suspicion with officials finding it difficult to accept any solution that favoured the taxpayer “even if SARS is wrong”.   

Clearly, the present ADR system needs re-thinking as it applies to resolving tax disputes. The overwhelming number of people using these services actually need a completely different kind of help: simple information from a SARS assessor. But in addition, the way the ADR system works might not actually be constitutional, according to several speakers. 

One, legal practitioner and academic Fareed Moosa, warned that SARS could face a challenge in the future over the constitutionality of the way ADR is handled. This is because the list of facilitators for disputes consists of SARS officials only, something that is bound to weaken public confidence in the facilitator’s neutrality and could lead to argument that the taxpayer had a reasonable apprehension of bias.

I have two other thoughts after listening to the debate. 

Perhaps SARS would be reluctant to allow ease of contact between assessor and taxpayer out of concern that such a relationship could become corrupt. In Australia, however, a second tax official, not working on the case being considered, is routinely assigned to facilitate or mediate a matter, and to work with the assessor and the taxpayer. In SA, a randomly selected additional SARS official could also be part of such meetings, to ensure the discussion is all above board, and to play a facilitating or mediating role.

Last, there seems to be a view that an e-filing system necessarily precludes actual meetings of people. But legal systems such as that in Namibia have shown that e-filing is not incompatible with face-to-face discussions: in that country, where e-filing is the norm, judges assigned to case management in a particular matter, meet regularly with the opposing parties to discuss the next step, review whether the parties have met the deadlines set in the previous meeting, and plan the way forward towards a hearing; the judge however will always be alert for when the possibility of settlement presents itself.

To listen to the full audio recording of the keynote address by Judge Bernard Ngoepe and the panel discussion which followed CLICK HERE

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