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Johannesburg - A tax law expert says South Africans are at a disadvantage regarding their tax returns as they could be prejudiced by contradictions between the law and the way in which returns are assessed.
"Unfortunately, there is very little that individuals or companies can do about the situation," says Ernest Mazansky, director of Werksmans Tax.
"When it comes to the assessment of tax returns, South African taxpayers have the worst of both worlds. They don't have the legislative checks and balances usually found in a self-assessment system and, in practice, are denied important protections inherent in the alternative," he said on Tuesday.
The reason is that SA has a de facto self-assessment system for income tax, but that is not what the law provides for.
"Legally speaking, what SA Revenue Service (Sars) staff members are supposed to be doing is carefully examining each tax return, together with supporting documents and financial statements."
In practice, Mazansky said, Sars does not have enough people to individually review each return (and it would be unrealistic to expect it); nor are taxpayers allowed to submit supporting documents.
"The size of the tax returns for both individuals and companies has shrunk to a few pages, requiring the submission of minimal information," Mazansky adds.
"The taxpayers are instructed not to submit supporting documentation, but to retain this in the event of an audit."
This is typical of a self-assessment system, he said.
"For the many taxpayers who choose to submit their returns by e-filing, it is impossible to submit supporting documentation anyway."
The dilemma for taxpayers is that without supporting documentation, they cannot properly disclose how they have interpreted the tax rules which the law allows for.
Mazansky said taxpayers are allowed to interpret the rules as they see fit and cannot be penalised provided they fully disclose what was done.
"The crux of the problem is this: how do you protect yourself by making full disclosure if you are prohibited from submitting the supporting documentation, explanations and submissions?"
He said that without the option of submitting documentation with tax returns, the best route is probably to write Sars a letter with an explanation.
Mazansky emphasised that he is not arguing for a return to the system where every tax return was individually examined and returns had to be accompanied by reams of documentation.
The impracticality of assessing every return had led to self-assessment systems.
"Such a system is inevitable and there is no real alternative to it because the practicalities of modern business life demand it. However, it is to the prejudice of South African taxpayers that the legal framework does not support what happens in practice," he said.
It was time for SA to formalise self-assessment by amending the legal framework.
"Until then, one effectively has a de facto self-assessment system without the legal back-up, and one has the legal protections of the alternative system, often without the ability to take advantage of them," Mazansky said.
"Unfortunately, there is very little that individuals or companies can do about the situation," says Ernest Mazansky, director of Werksmans Tax.
"When it comes to the assessment of tax returns, South African taxpayers have the worst of both worlds. They don't have the legislative checks and balances usually found in a self-assessment system and, in practice, are denied important protections inherent in the alternative," he said on Tuesday.
The reason is that SA has a de facto self-assessment system for income tax, but that is not what the law provides for.
"Legally speaking, what SA Revenue Service (Sars) staff members are supposed to be doing is carefully examining each tax return, together with supporting documents and financial statements."
In practice, Mazansky said, Sars does not have enough people to individually review each return (and it would be unrealistic to expect it); nor are taxpayers allowed to submit supporting documents.
"The size of the tax returns for both individuals and companies has shrunk to a few pages, requiring the submission of minimal information," Mazansky adds.
"The taxpayers are instructed not to submit supporting documentation, but to retain this in the event of an audit."
This is typical of a self-assessment system, he said.
"For the many taxpayers who choose to submit their returns by e-filing, it is impossible to submit supporting documentation anyway."
The dilemma for taxpayers is that without supporting documentation, they cannot properly disclose how they have interpreted the tax rules which the law allows for.
Mazansky said taxpayers are allowed to interpret the rules as they see fit and cannot be penalised provided they fully disclose what was done.
"The crux of the problem is this: how do you protect yourself by making full disclosure if you are prohibited from submitting the supporting documentation, explanations and submissions?"
He said that without the option of submitting documentation with tax returns, the best route is probably to write Sars a letter with an explanation.
Mazansky emphasised that he is not arguing for a return to the system where every tax return was individually examined and returns had to be accompanied by reams of documentation.
The impracticality of assessing every return had led to self-assessment systems.
"Such a system is inevitable and there is no real alternative to it because the practicalities of modern business life demand it. However, it is to the prejudice of South African taxpayers that the legal framework does not support what happens in practice," he said.
It was time for SA to formalise self-assessment by amending the legal framework.
"Until then, one effectively has a de facto self-assessment system without the legal back-up, and one has the legal protections of the alternative system, often without the ability to take advantage of them," Mazansky said.
