General
1716. Preservation of secrecy
March 2009 – Issue 115

Section 4 of the Income Tax Act, Act 58 of 1962, as amended (the Act) contains peremptory provisions prohibiting the Commissioner for the South African Revenue Service (the Commissioner) from disclosing information pertaining to a taxpayer to persons other than the taxpayer. Before an officer of the Commissioner may commence employment, they are required to subscribe to the oath of secrecy, whereby that official undertakes not to disclose information about a taxpayer to any person other than the taxpayer without the taxpayer’s permission or to the extent disclosure is permitted under the provisions of the Act.

The Commissioner often receives requests from the media and spouses in the process of divorce to release information regarding a particular taxpayer. Under the provisions of section 4, the Commissioner is prohibited from disclosing information relating to a particular taxpayer, unless the information is relevant to an investigation or prosecution of serious criminal offences, in which case, the Commissioner may disclose, subject to certain safeguards, information to the National Police Commissioner or the National Director of Public Prosecutions.

Court refers conduct of attorneys to the Commissioner

The Supreme Court of Appeal in the Chairman of the State Tender Board and Another v Supersonic Tours (Pty) Ltd, 2008 JDR 0499, was required to adjudicate on a decision of the State Tender Board to restrict the company and its directors, for a period of ten years, from obtaining business from the State or any organ of State. The case dealt with issues of procedural fairness and the provisions of the Promotion of Administrative Justice Act No. 3 of 2000. The dispute is not of interest to tax experts, but what is of interest is the court’s reference to the conduct of an unspecified firm of attorneys in procuring information from the Commissioner.

The firm of attorneys was instructed by the Department of Defence to investigate the correctness of the information supplied by Supersonic Tours (Pty) Ltd (Supersonic Tours) in bidding for the tender which gave rise to the dispute. The attorneys compiled a memorandum regarding the tax clearance certificate procured by Supersonic Tours and stated as follows:

"1.4… A more meaningful way would be to obtain access to the records of South African Revenue Services and the Unemployment Insurance Commissioner ("UIF") in order to determine the number of, and identity of each employee from whose salaries income tax and contributions to the UIF are deducted monthly and paid over. However, the South African Revenue Services by virtue of the provisions of section 4 of the Income Tax Act 58 of 1962 is prohibited from disclosing any information at its disposal and therefore such information should be collected in an ‘unofficial’ manner. This necessitated a delay in preparing and finalising this memorandum.

13.2.3 as indicated, we are employing ‘unofficial’ means of obtaining the information from South African Revenue Services. As at the point in time when this memorandum is being signed, such information is not yet available but we trust to have same available when we will shortly meet". (sic)

The court expressed its concern about the conduct of the firm of attorneys seeking to obtain the information from the Commissioner unofficially and, in this regard, stated as follows:

"In view of these statements I consider it necessary to request the Registrar of this Court to send a copy of the memorandum and of this judgement to the Commissioner, South African Revenue Services, drawing attention to this paragraph of the judgement, in order to alert him to the fact that there may have been a contravention of s 4 of the Income Tax Act and to enable him to take such steps as he may deem expedient including, if he considers such a step to be warranted, a referral to the appropriate Law Society which has jurisdiction over the firm of attorneys concerned".

Under the provisions of section 4, any person who is guilty of contravening section 4 of the Act is guilty of an offence and liable, on conviction, to a fine or to imprisonment for a period not exceeding two years.

Business people cannot, therefore, seek to obtain information from SARS as and when they feel they need information for any purpose whatsoever. In Welz & Another v Hall & Others, (1996) (SA) 1073, (59 SATC 49), the court made it clear that:

"A court will not lightly direct an official of the Revenue to divulge information imparted to him by a taxpayer".

The rationale for protecting information disclosed by taxpayers to SARS is to encourage full disclosure to SARS. This object would be undermined if our courts compelled SARS to disclose information received from taxpayers. Furthermore in the Welz case, the court also pointed out that the authorities could face disruption if anyone who desired financial information concerning a party to litigation could subpoena an official to produce the necessary records.

As a result, a court will not readily entertain a taxpayer’s request that SARS divulge information held by it regarding information on a taxpayer for purposes of commercial or other litigation. SARS officials are therefore only entitled to utilise information received from taxpayers in carrying out their duties under the Act or other fiscal statutes administered by the Commissioner.

The SARS Service Charter makes it clear that SARS will protect taxpayer’s constitutional rights by keeping taxpayer’s affairs strictly confidential and secret in compliance with section 4 of the Act and, indeed, with the right to privacy contained in the Constitution itself.

Conclusion

The Registrar of the Court will, no doubt, comply with the instructions issued by the Supreme Court of Appeal and the Commissioner will, in all likelihood, pursue the matter as directed by the court. The judgment dealt with matters of procedural fairness, but felt compelled to comment on the possible breach of section 4 of the Act.

Taxpayers need to be aware that information disclosed by them to the Commissioner is protected by the secrecy provisions contained in this section of the Act and this is reinforced by the right to privacy contained in section 14 of the Constitution of the Republic of South Africa, Act 108 of 1996, as amended.

The media and others persons are therefore prohibited from seeking information from the Commissioner pertaining to a particular taxpayer, unless the taxpayer agrees to the disclosure being made. The court therefore expressed the opinion that the procuring of information unofficially from the Commissioner prima facie constituted a violation of the secrecy provisions contained in section 4 of the Act and no doubt the Commissioner will take action as required by the court.

Edward Nathan Sonnenbergs