lifestyle questionnaire, the

Accountancy SA, Dec 2007/Jan 2008 by Croome, Beric J

This article considers the legal status of an SARS request that a taxpayer complete the so-called lifestyle questionnaire and similar documents. It also considers if a taxpayer will succeed in extracting the name of an informant from SARS.

The Commissioner occasionally requests that taxpayers complete the so-called lifestyle Questionnaire'. This questionnaire requires taxpayers to disclose full details of their assets and liabilities and annual expenditure incurred on holidays, food, school fees etc. Many taxpayers have enquired if the Commissioner's request is constitutionally valid. Based on my experience, the Commissioner calls on taxpayers to complete the Lifestyle Questionnaire where a taxpayer's income does not appear to support his or her standard of living or where the increase in the taxpayer's net assets is disproportionately high in relation to the taxpayer's income disclosed for tax purposes.

The Commissioner does not routinely use the Lifestyle Questionnaire, but uses it only in selected cases where a natural person is subject to an audit for sound reasons.

Taxpayers believe that the Lifestyle Questionnaire constitutes an undue violation of their right to privacy. However, the Commissioner uses the questionnaire with circumspection. Under s 74A, the Commissioner has the power to call for information about the taxpayer's personal affairs. He can also conduct an audit at the taxpayer's premises to confirm information under s 74B of the Income Tax Act. Taxpayers overlook the fact that the rights contained in the Constitution are capable of limitation, and that the Commissioner calls for the information under a law of general application.

It is contended that it is reasonable and necessary in an open and democratic society for the Commissioner to insist on the completion of the Lifestyle Questionnaire, and it is submitted that this does not constitute an unlawful violation of the taxpayer's right to privacy.

During 2006, the South African Institute of Chartered Accountants received reports from its members that the Commissioner's officials had arrived at business premises demanding that taxpayers complete a document entitled 'SARS Inspection Survey! The survey, still currently used, requires taxpayers to answer numerous questions about their business. The purpose of the survey undertaken by the Commissioner is to broaden the tax base of the country, which is notoriously low. The Commissioner's officers arrive at the business premises without prior notice and usually demand that the taxpayer answers the questions immediately, sometimes in front of clients and customers. Further, certain officials would deny the taxpayer's request to consult with his or her tax accountants or attorneys before answering the questions contained in the questionnaire. Such conduct is unreasonable and does not conform to the standard required in an open and democratic society. The Commissioner could achieve the objectives of broadening the tax base by less intrusive means.

The calling for information by the Commissioner from taxpayers for purposes of administering the Income Tax Act constitutes a violation of the taxpayer's right to privacy. However, such violation is probably lawful, as the Commissioner has a statutory duty to ensure compliance of taxpayers with the fiscal laws of the country.

Under s 4 of the Income Tax Act, the Commissioner's officials cannot discuss the taxpayer's affairs with any person other than the taxpayer. To demand answers to detailed questions on the taxpayer's business in front of third parties constitutes an infringement of the taxpayer's right to privacy. The Commissioner is charged with ensuring that taxpayers comply with the fiscal statutes administered by him. However, the violation of taxpayers' right to privacy should not be necessary to extend the tax base and the Commissioner's conduct should not be valid on the basis that section 36 of the Final Constitution justifies such conduct.

It is submitted that what should happen is that the Commissioner should require the business to provide details of its tax reference numbers before compelling the taxpayer to complete the SARS Inspection Survey. The Commissioner should then review information contained on the SARS computer system to establish if the business is registered for tax purposes or is in default with its obligations under the fiscal statutes. In the case of a defaulting taxpayer, the Commissioner can reasonably demand answers to the questions contained in the survey under s 74A of the Income Tax Act.

In addition, the survey requires a taxpayer to disclose details of his or her business plan to the Commissioner. It must be questioned how this constitutes information required for administering the Income Tax Act as required under s 74(1).

The Commissioner's officials' demand that the taxpayer completes the questionnaire immediately appears unreasonable, as the officials do not first establish whether the taxpayer's affairs with the Commissioner are in order or not.