Companies seeking alternative dispute resolution (ADR) to resolve a disallowed objection dispute with the South Africa Revenue Service (Sars) simply because it appears faster or less costly, could be making a mistake, says Nico Theron, founder of Unicus Tax Specialists SA.
ADR has become a central part of the Sars dispute process. According to Sars’ 2024/25 Annual Report, 97% of appeals were resolved through ADR during the reporting period. While the figure highlights how widely the process is used, Theron says businesses should not assume that ADR is automatically the best route once an objection has been disallowed.
“ADR can be an effective way of resolving a tax dispute, but the fact that it is widely used does not mean it is automatically the right answer,” says Theron. “The first question should be whether you actually have a defensible case and, if you do, what outcome you are trying to achieve.”
ADR is not a shortcut
ADR is a formal part of the Sars tax dispute process and takes place at the tax appeal stage. It gives the taxpayer and Sars an opportunity to engage in the dispute and potentially reach a negotiated outcome without proceeding to the Tax Board or Tax Court.
But that does not mean the process is necessarily easier or that settlement is always preferable.
According to Theron, the nature of the dispute is one of the first things a business should consider. A dispute involving contested facts may be more suited to ADR than one that turns primarily on the interpretation of tax law. Where the dispute concerns a legal principle, accepting a compromise may have implications beyond the immediate assessment.
“A strong dispute does not become a weak one simply because Sars has disallowed the objection, and a weak dispute does not become stronger because you take it into ADR,” he says. “You need to understand what you are actually arguing about before deciding how to proceed.”
The importance of a commercial decision
For businesses, the decision cannot be based on the tax amount alone.
The potential cost of continuing the dispute, the strength of the evidence, the likelihood of Sars changing its position, the time involved and the commercial consequences of uncertainty all need to be weighed against the possibility of reaching a negotiated outcome.
A large tax liability does not automatically make ADR the better option. Equally, a business should not pursue litigation simply because it believes it is entitled to win.
“Settlement should be a strategic decision, rather than a reaction to pressure,” says Theron. “If you are going to make concessions, you need to understand what you are giving up and why.”
The objection sets the stage
One of the risks of treating ADR as a fresh start is forgetting that the dispute has already been shaped by what was put forward during the objection stage.
The taxpayer’s original grounds, supporting evidence and Sars’ reasons for disallowing the objection all form part of the context in which the next decision must be made. The objection period itself is also important: taxpayers generally have 80 business days to lodge an objection, subject to the applicable rules and circumstances.
Before moving into ADR, Theron says businesses should therefore take a step back and assess the dispute as a whole: what exactly is being challenged, what evidence supports the taxpayer’s position, whether the issue is factual or legal, and what outcome would make commercial sense.
“ADR should not be viewed as a softer version of litigation or as a way of avoiding a difficult decision,” he says. “You need to know what your strongest sustainable position is before you decide what, if anything, you are prepared to concede.”
For businesses facing a high-value or technically difficult Sars dispute, the decision after a disallowed objection can be as important as the objection itself.
With ADR accounting for the vast majority of resolved appeals, it is clearly an important route for taxpayers to consider. But the objective should not simply be to settle. It should be to resolve the dispute on the best commercial and legal terms available.
