
Resolving tax disputes in South Africa is often a lengthy and expensive process, with many cases proceeding to the appeal stage or even the courts. However, a proposed amendment to the Tax Administration Act could change this by introducing alternative dispute resolution (ADR) earlier in the process—at the objection stage. This adjustment promises to save time, reduce costs, and improve efficiency for taxpayers and the South African Revenue Service (SARS).
ADR at the objection stage: A welcome change
Currently, ADR proceedings are only available at the appeal stage. These proceedings provide taxpayers an opportunity to engage directly with SARS auditors to discuss and resolve disputes. According to National Treasury, 97% of disputes referred to ADR at the appeal stage are successfully resolved, indicating its effectiveness.
By shifting ADR to the objection stage, Treasury aims to:
Resolve disputes earlier, avoiding unnecessary escalation.
Reduce the backlog of cases awaiting appeal or court proceedings.
Minimize legal costs for taxpayers and SARS.
The proposed change mirrors practice in other jurisdictions where ADR at the objection stage has significantly improved dispute resolution timelines.
Benefits of ADR for tax disputes
ADR allows for a more collaborative approach to resolving disputes, whether they are factual or legal in nature:
Factual disputes
Taxpayers can clarify evidence, highlight key documents, and address discrepancies directly with SARS.
Legal disputes
Taxpayers and their advisors can engage in discussions about tax provisions, supported by case law and legislative history.
Even if ADR does not result in a resolution, it provides valuable insights into SARS’ interpretation of the dispute, enabling taxpayers to refine their strategies for potential litigation.
Practical considerations for implementation
While the proposed amendment has been widely welcomed, concerns about its practical implementation remain. Some tax experts worry that if not properly executed, ADR at the objection stage could lead to delays.
Treasury has addressed these concerns by committing to review current dispute resolution rules to include clear procedural steps. Additionally:
Taxpayers who feel that ADR is delaying the resolution of their dispute can terminate the process and proceed to the next stage.
ADR facilitators, while often SARS officials, must meet strict criteria for neutrality and expertise, ensuring that the process remains fair and unbiased.
Another point of discussion is whether a second ADR process should still be available at the appeal stage if the first ADR is unsuccessful. Experts suggest that maintaining this option, with different SARS committees overseeing each stage, would ensure fresh and impartial evaluations.
Strengthening neutrality in ADR
To ensure fairness, some commentators have called for truly independent facilitators in ADR proceedings. While SARS officials often serve as facilitators, the 2023 tax dispute resolution rules allow for non-SARS facilitators who meet specific standards of expertise and impartiality.
Treasury emphasizes that facilitators must be acceptable to both parties, fostering trust in the process. This provision ensures that ADR remains a viable and neutral platform for dispute resolution.
A step forward for tax dispute resolution
The introduction of ADR at the objection stage represents a significant opportunity for taxpayers and SARS to resolve disputes more efficiently. By addressing issues early, taxpayers can avoid unnecessary legal costs, and SARS can reduce the administrative burden of prolonged disputes.
This amendment underscores the importance of collaboration and fairness in tax administration. With clear procedural rules and a focus on neutrality, ADR at the objection stage could transform how tax disputes are resolved in South Africa.
If you have concerns about navigating tax disputes or require expert advice, MMS Group is here to assist. Contact us to ensure your tax matters are handled effectively.