PRINCIPLES OF TAXATION

(TAX2601)

CONTENT DOCUMENT
LEARNING UNIT 2

Administration, returns and assessments

CONTENTS

2.1 Background
2.2 Registration of taxpayers
2.3 Income tax returns
2.4 Assessments
2.5 Dispute resolution
2.6 Tax payments and refunds
2.7 Penalties
2.8 Tax practitioners
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INTRODUCTION ______________________________________________________

This learning unit discusses the administrative procedures to be followed during a year of
assessment. These procedures are applicable to all persons, whether the person is a natural
person or a legal (incorporated) person, e.g. a company or a small business corporation, etc.
So, these provisions apply also to your own income and tax return, as well as in your capacity
as the owner or accountant of a business. These procedures form a process, which can be
summarised as follows:

A person registers as a
taxpayer

A person registers on
SARS eFiling

The taxpayer receives a tax

return

The taxpayer earns income and

The taxpayer completes the tax
return indicating income,
expenses and allowances, and
submits it to SARS
receives an IRP5 or IT3 (for an
individual) or prepares a financial
statement (for a business)

The taxpayer receives an

assessment from SARS

Decision The taxpayer accepts the return

and pays any outstanding tax

If the taxpayer disagrees with the

assessment, he/she follows the
objection procedures (see later)

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The rules and procedures for each step in the above-mentioned process will be discussed, as
well as the objection process and any future action that may be instituted.

STUDY PROGRAMME ________________________________________

Refer to the suggested study programme in the “How to study TAX2601” document.

You should spend a minimum of six (6) hours on this learning unit.

LEARNING OUTCOMES _______________________________________

After you have completed this learning unit, you should be able to:
• state the process of registering as a taxpayer

• illustrate the process of assessment

• summarise the process of objecting (appeal) to an assessment.

PRESCRIBED STUDY MATERIAL FOR THIS LEARNING UNIT ________

Chapter 9 in the prescribed textbook

 SECTIONS OF THE PRESCRIBED TEXTBOOK WHICH YOU MAY IGNORE

9.11 Recovery of tax and 9.16 Criminal offences

CONTENTS

2.1 Background

In learning unit 1, the tax legislation of the Income Tax Act was discussed in general. You
were introduced to SARS and the different types of taxes applicable to South African taxpayers.
The interpretation of tax law was also discussed, and you were presented with the basic

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framework for calculating taxable income and a tax liability. The Tax Administration Act
contains certain procedures that have to be followed to ensure that all tax that is due is col-
lected. This is achieved through the Commissioner, who has certain discretionary powers and
who must make certain decisions. If the taxpayer does not agree with such a decision, he/she
can lodge an objection and, if the dispute is not resolved, further steps may be taken. This
learning unit will cover all these aspects.

Read sections 9.1 Introduction to 9.4. General administrative provisions

2.2 Registration of taxpayers

Any person (including an individual, company or trust), who becomes liable for any normal tax
at any time or who becomes liable to submit any income tax return, unless a specific tax act
provides otherwise, must apply to register within 21 business days after becoming obliged to
register.

The person, who applies to be registered as a taxpayer, has to visit a SARS branch. Once
SARS has processed the application, the applicant will be issued with an income tax reference
number. SARS currently requires all employees receiving any form of employment income to
register as taxpayers and to acquire income tax reference numbers. Therefore, all salaried
employees will be registered for tax purposes by their employers if they have not already been
registered for tax.

Study sections 9.5 Registration of taxpayers and 9.6. E-Filing

You may ask: How will SARS know if I don’t register for tax or don’t
declare all my taxable amounts?

This is where ethics come in, and this principle should be applied by all citizens of South Africa.
This also supports the UNGC (United Nations Global Compact) principle 10, namely
“businesses should work against corruption in all its forms”. At its simplest, ethics is a system
of moral principles that is concerned with what is good for individuals and society. The
implication of not paying your fair share of taxes is that you act unethically. If you are a
citizen and you use all the benefits of being a citizen like heath care and education, you are

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responsible for paying taxes just like anyone else. Everyone has a role in
preventing corruption by acting with personal integrity and making ethical choices.

Open the following link, https://www.saipa.co.za/wp-

content/uploads/2018/08/Tax-Professional_32_FINAL.pdf read through it
briefly and discuss this concept in the Forum under learning unit 2.

2.3 Income tax returns

The source documents used as the basis for the assessment process are called income tax
returns: ITR12 (for individuals) and ITR14 (for companies). These returns are designed by
SARS and available online on SARS eFiling for taxpayers to complete. If a taxpayer does not
have access to eFiling, a SARS branch can be visited where a SARS official will assist the
taxpayer to complete the tax return online at the branch. The Tax Administration Act contains
rules regarding who should, or should not, submit returns. Various administrative regulations
and stipulations in the Act prescribe how and in what way returns should be submitted.

As discussed previously, the tax return forms the basis for the South African tax system. The
information the taxpayer fills in on the return is used to calculate the taxpayer’s tax liability. The
information for businesses is obtained from the annual financial statements.

Study section 9.7. Returns and records

Something to think about: Why is it necessary to have formal rules for the
administrative procedures?

2.4 Assessments

Once SARS has received the tax returns, the information on the returns is processed and an
income tax assessment (ITA34) is uploaded on eFiling. The ITA34 indicates the calculation of
taxable income and normal tax for the year of assessment. The ITA34 also indicates if any tax
is due by or refundable to the taxpayer for the year of assessment.

Where a taxpayer fails to submit a return or submits the return after the due date, SARS may

• issue an estimated assessment

• issue an additional or a reduced assessment
• withdraw an assessment.

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Study section 9.8. Assessments

2.5 Dispute resolution

If taxpayers are not satisfied with an assessment, they may lodge an objection. You will notice
that for every step in the process, specific rules, especially date rules, should be complied with.
If these rules are not complied with, SARS or the court could reject the case without hearing it,
and the taxpayer would be liable to pay the tax as assessed.

Study section 9.9. Dispute resolution

Please note:
The textbook has not yet been updated with the latest set of Rules issued
by the Minister on 10 March 2023.
! The main difference being that a taxpayer now has 80 days in which to
object to an assessment as opposed to 30 days in terms of the previous
Rules.
We will mark both options as correct during 2024.

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The objection and appeal procedures for the taxpayer can be summarised as follows:

Receives assessment
from SARS

(ITA34)

Accepts assessment and pays the

Correct
assessed tax or receives a refund
Yes
No
Lodges an objection on a NOO (notice
of objection) form via eFiling with
SARS (or ADR1 form)
Accepts new assessment and
Yes pays revised assessed tax or
Rectify receives a refund

No
Lodges an appeal

(NOA (notice of appeal) or ADR2 form)

Alternative Tax
dispute Board/Tax
resolution Court

You should know and understand the following about objection and appeal:

• It is the taxpayer’s responsibility to prove that the assessment is incorrect; in tax terms, we
say that the burden of proof vests with the taxpayer.
• The prescribed objection procedure must be followed.
• The prescribed appeal procedures against a disallowed objection must be followed.
• The alternative dispute resolution (ADR) process must be followed.
• The taxpayer should take note of the way in which tax is paid in the case of a pending
objection and appeal.

A taxpayer may enter into an ADR with SARS at any time. The purpose of this process is to
settle tax disputes in a speedier, more cost-effective manner and, as far as possible, out of
court. Both parties must agree that the ADR procedures can be followed. However, this process
may be stopped at any time and the case referred to the court. If the option of taking the matter
to court is chosen, the matter will generally be taken first to either the Tax Board or the Tax
Court, depending on the value and merits of the case. Thereafter, the party that loses the case
may follow the normal South African legal precedent, firstly going to the High Court, then the

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Supreme Court of Appeal and even in certain cases, to the Constitutional Court (refer to
learning unit 1).

You need to know the rules of objection and appeal and be able to
answer short questions in an assignment.

Something to think about: Why are decisions by SARS subject to

objection and appeal?

2.6 Tax payments and refunds

Tax must be paid by the date notified by SARS (which is found on the assessment) and must
be paid in a single amount or in terms of an instalment payment agreement. Tax must be paid
regardless of whether an objection or appeal is pending. SARS may allocate a payment
received against an amount of penalty or interest or the oldest amount of tax outstanding (this
is known as the first-in, first-out principle).

If a taxpayer owes SARS a tax amount that is not paid in full by the effective date or if a taxpayer
is due a refund, interest accrues on the outstanding balance of tax due or the refund at a
prescribed rate that the Minister may determine from time to time by notice in the Government
Gazette. The interest accrues for the period from the effective date the tax is due/payable to
the date the tax is paid.

Study sections 9.10 Tax liability and payment, 9.12 Interest and 9.13
Refunds.

2.7 Penalties

The Commissioner may impose an administrative non-compliance penalty in certain cases, for
example if a taxpayer fails to keep proper records or obstructs a SARS official. The penalty
may comprise a fixed amount or may be percentage-based. The fixed-amount penalty is
charged in terms of a prescribed table in the Tax Administration Act. The percentage-based
penalty is prescribed in the relevant Act, for example, a matter regarding income tax will be in
the Income Tax Act and a VAT matter will be in the VAT Act.

There is also an understatement penalty, which relates to an omission (i.e. not submitting a tax
return) or an incorrect statement in a return. This penalty is also determined in accordance with
a prescribed table in the Tax Administration Act.

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Study sections 9.14 Administrative non-compliance penalties and 19.15

Penalties.

2.8 Tax practitioners

Any person, who provides advice to any other person regarding any Act administered by the
Commissioner or who completes or assists in completing a return for a consideration, must
register as a tax practitioner in the prescribed manner and form.

Study section 9.17 Reporting of unprofessional conduct.

PRACTICAL QUESTION 2.1

The following question provides a typical scenario where you must apply the above content to
know what the taxpayer must do. You are expected to provide your answer to this question
in the Forum called “Practical Question 2.1” in the LU 2 tab on the module page. Only
after most of the students have engaged with the Forum, will the proposed solution be
provided (in this Forum).

Majuba (Pty) Ltd was issued its 2023 ITA34 tax assessment on 31 January 2024. The
accountant of Majuba (Pty) Ltd has reviewed the issued assessment and he disagrees with the
disallowance of a capital allowance claimed of R15 500. The ITA34 reflects an amount of
R6 875 due to SARS, payable on or before 31 March 2024. The accountant submitted an
objection against the issued tax assessment on 4 February 2024 and SARS declined the
objection on 15 March 2024.

REQUIRED
List the procedures that Majuba (Pty) Ltd may follow to rectify the incorrect 2023 tax
assessment.

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WRAP-UP

Having completed this learning unit, you should now know the following concepts, which were
covered in the study material:

• Powers and duties of the commissioner

• Registering as a taxpayer
• Returns
• Assessments
• Objection and appeal
• Settlement of disputes
• Tax payments
• Penalties
• Registration of tax practitioners

Every taxpayer must submit a return of income earned during a tax year. He/she/the business
is then assessed on this income by the Commissioner, who determines the amount of tax
payable by the taxpayer for such a tax year. If the taxpayer is not satisfied with the tax
assessed, an objection may be lodged to such an assessment and, if the objection is
disallowed, appeal to either the Tax Board or the Tax Court if the alternative dispute resolution
(ADR) process is not followed instead. If the taxpayer agrees with the assessment or is
successful in the objection and appeal, the outstanding tax must be paid when it becomes due;
otherwise, interest will be charged on the outstanding amount of tax. If a taxpayer does not
submit a return, he/she/the business will be guilty of an offence and liable for a fine or
imprisonment if convicted. Additional tax may also be imposed in certain circumstances.

Complete the online self-assessment quiz, “Administration, returns and

assessments”, in the LU 2 tab on the module page. The assignment will
consist of similar types of questions.

Why do you think this learning unit is important?

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This learning unit is very important with regard to tax practice, as SARS may use various forms
of penalties and interest when taxpayers are not tax compliant; for example, not submitting tax
returns, making late payments for taxes due, or even failing to declare income for tax purposes.

When assessing this learning unit in assignments, we could ask you to answer multiple types
of questions about:

• the powers and duties of the Commissioner

• registering as a taxpayer
• returns and assessments
• the process of objection and appeal
• settlement of disputes
• tax payments and penalties
• the registration of tax practitioners.

_______________________________
End of Learning Unit 2

©
Unisa

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