"Confidentiality of taxpayer information has always been a fundamental cornerstone of tax systems… taxpayers need to have confidence that the often-sensitive financial information is not disclosed inappropriately, whether intentionally or by accident." (Organisation for Economic Co-operation and Development - OECD)
The confidentiality of taxpayers’ information has recently come under the spotlight in South Africa. This was first sparked by a public statement from SARS earlier this year on the tax compliance status of President Cyril Ramaphosa and two related entities.
“In taking this exceptional step to disclose the tax status of the President, with his written consent, SARS would also encourage other high profile political office bearers and leaders in society to consider taking this proactive step as part of their commitment to transparency,” SARS Commissioner, Edward Kieswetter, said at the time.
This was followed by a recent Constitutional Court ruling concerning tax confidentiality and the right of access to information, relating to a request under the Promotion of Access to Information Act (PAIA) to access certain tax records of former President Jacob Zuma (Arena Holdings and others v SARS and another).
The court found that certain provisions of PAIA, as well as the Tax Administration Act (TAA), are constitutionally invalid, and ordered SARS to reconsider the request to disclose taxpayer information, taking into account certain issues.
While this re-evaluates the previous absolute confidentiality of tax records – and affects every taxpayer in South Africa - SARS says that the judgment does not set aside the tax confidentiality provisions for the information it collects.
What information can SARS collect?
SARS has access to a wide array of sensitive information about both businesses and individuals, and it has long been accepted that the confidentiality of this information is paramount.
Taxpayer information is defined in the TAA as any information provided by a taxpayer or obtained by SARS in respect of the taxpayer, including biometric information. SARS draws on available data from statutory declarations by taxpayers, data from third party providers as well as other sources.
In addition, not providing sensitive financial - and even extremely personal - information to SARS is not an option.
According to the TAA, it is a criminal offence for a person to wilfully and without just cause refuse or neglect to:
- furnish, produce or make available any information, document or thing, excluding information requested under section 46(8)
- reply to or answer truthfully and fully any questions put to the person by a SARS official
- take an oath or make a solemn declaration
- or attend and give evidence
as and when required in terms of the Act.
Furthermore, taxpayers are legally obliged to disclose the information required to discharge the burden of proof, and to ensure access for SARS to certain records at all times.
By not complying with these provisions, a taxpayer is guilty of an offence and, upon conviction, is subject to a fine or to imprisonment for a period not exceeding two years.
What about POPIA and PAIA?
The Protection of Personal Information Act (POPIA) gives effect to the constitutional right to privacy and protects citizens from harm by protecting their personal information. However, POPIA does not apply to an obligation imposed by law or where legislation is enforced concerning the collection of revenue. A taxpayer is thus legally obliged to disclose relevant information requested by SARS.
So, for example, SARS may request medical history information or details about retirement funding contributions to allow a rebate claimed by a taxpayer. Similarly, SARS may have to exchange taxpayers’ information with other tax authorities where double taxation treaties apply.
PAIA creates a framework for the mandatory protection of records that generally contain information “deserving of protection”. Section 35 of PAIA protects all taxpayer information and provides mandatory protection for certain SARS records from third party requests.
However, this will change following the Constitutional Court ruling that sections of PAIA providing absolute taxpayer confidentiality are constitutionally invalid. Until this is remedied, mandatory disclosure in the public interest must be considered by SARS where: the disclosure will reveal evidence of a substantial contravention of or failure to comply with the law; or reveal evidence of an imminent and serious risk to public safety or the environment; and if the public interest in making the disclosure clearly outweighs the harm.
What protection is available for taxpayers’ information?
To protect taxpayer information, every SARS official takes an oath or makes a solemn declaration to comply with the statutory confidentiality provisions and is legally required to treat taxpayer information with the utmost confidentiality and not to disclose it. A breach of these confidentiality provisions is a criminal offence in terms of the TAA.
In addition, the TAA prohibits SARS from releasing taxpayer information unless the disclosure falls within an exception to the general rule that safeguards taxpayer information, expressly provided for in the TAA, which includes divulging taxpayer information:
- to certain persons and entities identified in the TAA like the South African Police Service or the National Prosecuting Authority
- to administer a Tax Act
- to comply with a court order
- where a taxpayer gives written consent [as in the case with President Ramaphosa]
- or if another act expressly overrides the TAA confidentiality provisions, such as the Financial Intelligence Centre Act and the Prevention of Organised Crime Act.
In addition, while the Constitutional Court decision declared sections of the TAA and PAIA unconstitutional, it does not set aside the tax confidentiality provisions. It does, however, limit absolute confidentiality.
A high threshold must still be met when access is requested to the tax records of a taxpayer and there are “formidable substantive and procedural hurdles” to overcome before a taxpayer’s information may be disclosed. Even where permitted by law, before divulging taxpayer information, SARS must consider the purpose for which the information is being requested, how it will be used and how it will be protected.
Subsection 70(5) of the TAA further provides that such disclosure may be made only to the extent that it is necessary, relevant and proportionate to exercise a legislative function or duty.
A taxpayer distressed by a decision that grants access to tax records has recourse available, such as an internal appeal, a complaint to the Information Regulator, or an application to the High Court.
Ensure compliance, while only providing relevant information
The information that can be requested by SARS is not limited to what is requested during a formal investigation or audit – it could be a request for information for any purpose related to the administration of a tax act.
However, SARS may only request relevant information related to and within the ambit of the administration of tax acts. So, for example, information requested about income tax must be related to the Income Tax Act. Existing case law further indicates that relevancy is tested by whether the information directly proves or disproves the issue at hand.
Disputing a request from SARS for relevant information will be costly and futile, however, taxpayers can contest an unreasonable request for information.
This means that the advice and assistance of your accountant is indispensable when dealing with requests for information from SARS, and in ensuring that only necessary, relevant and proportionate information is provided, as well as to ensure your information is protected as dictated by law.
