The Free State High Court recently reaffirmed the jurisdictional limits of the High Court regarding tax disputes with the South African Revenue Service (“SARS”), in the Ditsoane Trading and Project CC v CSARS (4438/2023) [2025] ZAFSHC 300 case. This judgment underscores that disputes relating to understatement penalties under sections 222 and 223 of the Tax Administration Act, No. 28 of 2011 (“TAA”) must, as a general rule, be dealt with through the tax board or tax court, unless a High Court expressly directs otherwise under section 105 of the TAA.

In this case, the taxpayer sought to appeal an earlier decision dismissing its challenge to the constitutionality of SARS’s Understatement Penalty Committee and the penalties imposed. The taxpayer argued that the matter involved a legality review of the exercise of public power, and thus fell within the jurisdiction of the High Court. The Court, however, disagreed.

Acting Judge President Mbhele and Daffue J held that the dispute arose directly from a SARS assessment, and an ensuing understatement penalty determination under the TAA. As such, the proper avenue for objection and appeal was prescribed in Chapter 9 of the Act, which provides that such disputes must first proceed through the internal objection and appeal processes, with the tax board or tax court as the default forum.

Citing the Supreme Court of Appeal’s decision in Commissioner for the South African Revenue Service v Rappa Resources (Pty) Ltd 2023 (4) SA 488 (SCA), the Court reiterated that section 105’s purpose is to ensure that tax disputes follow the structured statutory dispute resolution route. The High Court’s jurisdiction is therefore not automatic but contingent upon a deviation order, which the taxpayer had not obtained.

Importantly, the Court also emphasized that a jurisdictional inquiry must precede any consideration of the merits. Once a court concludes that it lacks jurisdiction, it cannot proceed further. The Court further dismissed the taxpayer’s reliance on the Biowatch principle, noting that constitutional cost protection applies only to genuine constitutional matters, not to disputes that are vexatious or misconceived.

Finding no reasonable prospects of success on appeal, the Court dismissed the application with costs, including the costs of two counsel.

A Clear Message on Procedural Discipline

This decision reinforces the consistent position of the courts that tax disputes should follow the legislated internal remedies before resorting to higher judicial forums for adjudication. Section 105 of the TAA is not a procedural technicality, but a substantive jurisdictional gatekeeper designed to preserve the integrity and efficiency of the tax dispute resolution system.

Taxpayers and their representatives are reminded that attempts to bypass the tax court framework, even when framed as constitutional or legality reviews, will not succeed without an explicit order authorising deviation.

Conclusion

The Ditsoane Trading judgment adds to the growing body of jurisprudence affirming the Tax Administration Act’s dispute resolution hierarchy. It also signals to practitioners that a careful and disciplined approach to the prescribed remedies is not merely a procedural formality, but a jurisdictional necessity.

This clarity should, in turn, reduce jurisdictional disputes and promote consistency in the handling of understatement penalty challenges.

Taxpayers facing understatement penalties or other assessment disputes should seek early professional advice from qualified tax attorneys before approaching the High Court. Proper navigation of the objection and appeal process can save significant time, cost, and risk, thus ensuring that disputes are resolved within the appropriate forum and in line with the TAA’s procedural framework.

Written André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA; and Richan Schwellnus, Senior Tax Attorney at Tax Consulting SA