Law of Taxation 411 Entire Coursework Summary (cases + theory)
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Course
Law Of Taxation 411 (411)
Institution
Stellenbosch University (SUN)
Book
SAICA Student Handbook, 2020/2021
An in-depth document covering all of the work done in the course. Includes notes made in class from the slides, from the prescribed textbook & legislation book, & things mentioned by the lecturer as well case law discussions. Set out in an organised manner which makes the subject easy to understand...
Topic 1: Introduction to Tax law
Definitions:
Tax is money you pay to the gov. to provide services for general good of society, the value of which you
don’t get back as an individual
Income Tax Act 1962: tax is a tax or a penalty imposed ito the ITA (doesn’t tell us content of the term ‘tax’)
Tax Administration Act (TAA): ‘tax’, for purposes of administration under this Act, incl. a tax, duty, levy,
royalty, fee, contribution, penalty, interest & any other moneys imposed under a tax Act
Economic definition: taxes are transfers of resources from persons/ economic units to gov. & are compulsory
(legally enforceable). There’s not necessarily a direct connection between the resources transferred to gov.
& the goods & services that it supplies
o Just because you pay tax doesn’t mean you get a direct benefit.
‘A monetary based compulsory contribution payable by the public as a whole or a substantial sector thereof
to a gov. (at a national or subnational level)’ (Croombe et al)
Davis tax commission
o Appointed in 2013 by then finance minister (Pravin Gordon)
o Were empowered to investigate SA tax system & make recommendations on improvements.
o ‘Taxes are general obligations for which payments are compulsory & are enforced ito leg., no direct
benefits accrue to taxpayers in exchange for payment made & the benefits are returned to groups of
people, not to identifiable individuals’
E.g. if I pay my tax, it doesn’t guarantee me a bed in a gov. hospital during a pandemic. The
beds are provided by gov who choose how beds are allotted.
E.g. rates & taxes (tax on property levied by a municipality) is usually used for service
delivery (waste collection, water etc.) but it’s even used for flower beds & pots placed along
public streets. Whether you pay rates & taxes or not, you still get to enjoy the flower beds.
History:
For time immemorial, there have been taxes in some form in human society
o First known taxes started in 3000BCE in Egypt.
o In Ancient Rome, the Ceaser charged taxes (toll tax & a pole tax – tax per person)
o Virtually all societies impose some form of tax
Tax is part of the social contract – what we pay for a civilised society
o If you pay tax, gov will provide certain services funded through these taxes
o Gov. has very few means of obtaining money, & tax is the most viable method (as opposed to
borrowing money at a high interest).
o ‘tax is a critical part of the social contract between the state & its citizens’ – Davis Tax Commission
o ‘a state can’t exist w/o taxes. Society receives benefits from them’ – Pienaar Bros v SARS
o ‘They’re indispensable in an open & democratic society to enable the state to discharge its
obligations towards its citizens’ – PWC v SARS
Constitution:
This is our social contract providing for tax
No explicit provision providing for tax
S55(1) Const: enable the NA to consider, pass, amend or reject any leg. (this incl. tax leg.)
o Power to enact tax leg. to compel payment of tax to gov
S213(1): talks about the National Revenue Fund
o Any money due to gov. must be paid to the National Revenue Fund
o Const. foresees that gov. will receive money.
S228: empowers provinces to impose taxes (very limited power)
o Const. is explicit about the limitations of this power
S229: empowers municipalities to charge taxes
o This is how municipalities get their money (rates & taxes)
o Municipalities can levy surcharges on fees/ services provided by the municipality (e.g. surcharges on
what you pay for electricity)
S77(1): Leg. must be passed that is a money bill
o Money bill: appropriates money or imposes national taxes, levies, surcharges or duties.
, o Money bill may not deal with any other matter (except insubordinate or incidental – e.g. interest &
penalties to enforce tax)
o Bill must by passed by the NA ito s75 Const & referred to the National Council of Provinces (NCOP)
o Only the Finance Minister may prepare or initiate a money bill (s73(2) Const).
Usually, for any other leg. any minister can introduce leg., so this is unique.
SA Reserve Bank v Shuttleworth: Shuttleworth wanted to immigrate to England, but to take his money
(considerable fortune) with him, he needed permission of SA Reserve Bank, as SA has exchange control.
Exchange control means that gov. (SARS) controls money going out of SA to protect SA’s economy.
Shuttleworth also needed to pay an exit charge ito exit control regulations for 10% of the money he was
moving outside of SA. Exit charge is to discourage people moving money out of SA. Later, Shuttleworth was
advised that the charge was actually a tax & that it wasn’t charged in a const. manner.
o LQ: was the exit charge a tax? (if it’s a tax, then the reg. was invalid as it didn’t comply with s75 &
s77 of the Const.)
o CC: The power to raise taxes is an incident of & subservient to democracy (you must link taxes &
democracy). Executive may not impose tax, the legislator imposes tax (democratically elected
representatives of the people). CC looks at meaning of ‘national taxes, levies, duties & surcharges’
(s77(1)(b) Const.). Provision has a wide meaning & often, these words are used as synonyms. A label
isn’t decisive – just because leg. calls it a tax doesn’t make it automatically a tax. In interpreting leg.
it must be done in its context & by looking at purpose of the leg. (exit charge). The real test is the
purpose: is the dominant purpose of the leg. to raise revenue? If yes, then it’s tax; but if raising
revenue is incidental & main purpose of the leg. is regulating conduct, it’s not tax. Court mentions
various factors to determine what dominant leg. purpose is: Whether money is paid into the general
revenue fund for general purposes (indicates tax), whether the person paying doesn’t get a specific
service for paying (if not, then it indicates tax); words used in leg.; whether money is imposed as a
whole or on a substantial part of the population (if not, then not a tax); whether fee is used to defray
admin costs (not a tax); whether the purpose is to ensure constant stream of revenue for state (tax).
The charge wasn’t imposed on general public – indicates no tax. Purpose of the exit charge was to
curb/ regulate export of capital from SA. The leg. purpose was therefore to regulate conduct, so not
a tax. The charge wasn’t a money bill for tax & was therefore const. as it didn’t need to comply with
const. requirements for tax bills.
Often people say that taxes contravene s25(1) Const: no one may be deprived of property, except ito a law
of general application & no law may permit arbitrary deprivation of property.
o People argue that tax is a deprivation of property.
o PWC Inc. v SARS 2021: Deprivation of property: must be substantial interference with enjoyment/
use of property. No use & enjoyment is unlimited –question is whether tax is beyond normal use &
limitation of property enjoyment. In an open, democratic society, imposing a tax is normal. By
imposing tax, there’s no deprivation of property as it’s a normal limitation on enjoyment of property
– it’s a normal incident of democracy.
Classification of taxes:
There are many ways to classify taxes:
o 1. Tax Base
o 2. Rate Structure
o 3. Direct/ Indirect Tax
Classification 1: tax base:
Definition: the thing that is being taxed
3 bases:
o 1. Income
Taxation of income owed
Income Tax Act
Common type of tax worldwide
One of the most NB taxes in SA – bring in more than 50% of all tax revenue.
o 2. Consumption
Taxation of goods & services – VAT is the most NB one.
E.g. VAT, customs & excise, diamond export levy.
, Excise – gov. had COVID lockdown where they banned alcohol & cigarettes which made gov.
lose millions in excise tax & opened a black market.
Customs – deals with imported goods
o 3. Wealth
Typically, this deals with taxation of property (immoveable)
E.g. paying rates & taxes for a property you own
Donations tax – if I donate property, the donor must pay 20% tax for transferring wealth.
Estate Duty –possessions go to heirs & the estate must pay 20% duty for transferring wealth.
Capital gains tax – when you transfer capital & have made a profit, sometimes you’re taxed
Transfer duty – paid on the transfer immovable property.
Classification 2: rate structure
Proportional:
o Tax generates the same proportion of income as income rises
o Flat rate
o E.g. CIT of 28%
Progressive: tax rate increases as income increases
Classification 3: direct/ indirect tax:
Direct tax:
o Levied on a person
o That person upon who it is levied pays tax
o Tax isn’t passed on
o E.g. Personal Income Tax
Indirect tax:
o Imposed on commodities & transactions
o Passed on to consumers by incorporating into price of goods & services.
o E.g. VAT
Objectives of taxation:
Revenue
Redistribution of resources
Economic growth
Reprising
Criteria for a good tax system:
Equity
o Is the tax burden distributed equitably or fairly?
o Ability to pay
o Horizontal equity
o Vertical equity
Certainty
Simplicity & convenience
Cost-effective & efficient
o Collection costs
o neutrality
Topic 2: Administration, Interpretation & Dispute Resolution
Introduction:
Administration:
o Secrecy & confidentiality
o Procedure for collection
Dispute resolution:
o Objection & appeal
o Other
, o Onus
Interpretation
Administration: general:
Administration of income tax
Most provisions in Tax Administration Act (TAA) are administrative
South African Revenue Service (SARS) responsible for collection of income tax
o Commissioner of SARS (C:SARS)
Wide power to gather taxes
Taxpayer should be able to disclose info to SARS & know it will be kept confidential
SARS officials take an oath (s67(2) TAA)
o If info is disclosed, a person to whom it’s disclosed cannot disclose it further (s67(3) TAA)
o Offence (s236 TAA)
Secrecy & Confidentiality:
2 categories of confidential info:
o 1. SARS confidential info (s68(1) TAA)
Info held by SARS ito its own affairs & the admin of taxing Acts
Disclosure of such info could jeopardise effectiveness
E.g. security at the SARS buildings, how SARS collects info from taxpayers etc.
May not be disclosed ito TAA
SARS must take precautions to prevent disclosure
May be disclosed if:
It is public info
Disclosure is authorised by the SARS Commissioner
Disclosure is authorised expressly under another Act (Despite Chapter 6 TAA)
o Instance where another leg. expressly provides that irrespective of what is
stated in TAA, the Commissioner may disclose (must be express provision)
Access to info is granted ito PAIA (taxpayer can apply for this)
A HC grants disclosure (taxpayer/ general public can approach the court)
o 2. Taxpayer info (s69 TAA)
Info provided by tax payer or info obtained by SARS ito taxpayer (incl. biometric info)
SARS may not disclose this info
Disclosure is allowed if/ when:
The taxpayer discloses info or makes false allegations which are published
o Disclosure is allowed to protect SARS’s reputation & integrity
o 24hr notice must be given to taxpayer that they’re going to publish the info
(S67(5) TAA)
o W/o this provision SARS would be stuck if taxpayers spread false info
Tax offence: info may be disclosed to SAPS & NPA for prosecution purposes
o E.g. not paying VAT owed to gov.
Other Act explicitly permits disclosure (despite Chapter 6 TAA), disclosure is allowed
HC order allows disclosure of info (s69 TAA)
o HC may only grant this under very limited circumstancesSELF STUDY
Info is already public info
Written consent from the taxpayer to disclosure of their info.
Criminal, public safety or environmental matters (s71 TAA)
o SARS may disclose confidential info in limited circumstances:
o If ordered by a judge, a senior SARS official must disclose info to National Commissioner of SAPS or
National Director of Public Prosecutions if:
There’s a serious offence
It’s relevant to investigating/ prosecuting an offence
Imminent or serious public safety risk exists
o SARS may make ex parte application to a judge in chambers
NPA or SAPS may also do this.
Further possible forms of disclosure (s69(8) & 70 TAA)
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