SARS may select a person for inspection, verification or audit on the basis of any consideration relevant for the proper administration of a tax Act, including on a random or a risk assessment basis. These SARS information gathering processes are not the same with different taxpayer rights and obligations flowing from them.
An inspection is conducted in terms of section 45 of the Tax Administration Act. This allows a SARS official, without prior notice, to arrive at a taxpayer’s premises to conduct an inspection to determine only the identity of the person occupying the premises, whether they are registered for tax, and have complied with their record keeping obligations.
The words ‘verification’ or ‘audit’ are not defined in the Act. In Forge Packaging (Pty) Ltd v CASRS the court pointed out that when these words are used in the Act they are always employed in association with, and in contradistinction to each other. In other words, they represent discrete and distinguishable exercises.
The dictionary definition of verification is ‘the process of establishing the truth, accuracy, or validity of something’. The court explained that the import of the word is neutral as to by whom the process of checking is undertaken; it could be a third party, or the person who produced the matter that is being checked. SARS sees the process as one where the taxpayer is called upon itself to check and confirm the accuracy and correctness of the return that it has made. It is a face value corroboration of the information declared by a taxpayer in a return against the financial records furnished by it. Verification is a limited process that does not go beyond determining that amounts declared are correct.
In contrast, an audit implies an independent review process. The dictionary defines it as ‘an official inspection of an organization’s accounts, typically by an independent body’. An audit goes further than a corroboration of information, it interrogates the information provided by the taxpayer and obtained from other sources to come to an accurate assessment of the taxpayer’s tax position. SARS analyses the information in an audit to get an understanding of it. An audit envisages an investigation into the correctness, completeness and subsequent treatment of all aspects reflecting the taxpayer’s state of affairs.
An example of the different rights afforded to a taxpayer in these processes is that SARS obligation under section 42 to keep the taxpayer informed during an audit does not apply to a verification.
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