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Speed up your refund, even if you are being audited

23 January 2015   (0 Comments)
Posted by: Author: Lesedi Seforo
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Author: Lesedi Seforo (SAIT)

Refunds: a frustrating process

You know the story. Company A submits a VAT return to SARS and is fortunate enough to be in a refund position. Your initial jubilation at the prospect of obtaining much-needed funds for your business quickly dampens when you get a notice telling you that SARS has to perform an audit. Why? Because your tax advisor once told you that being audited means no refund until SARS is done. The audit then drags on for months and months with no communication from SARS regarding its progress. Finally, everything gets finalised 18 months later when the VAT refund is paid into Company A’s bank account. 

The above is an all-too-familiar tale that tax practitioners have seen repeated ad nauseam. On many occasions I’ve had to assist tax practitioners escalate such matters to the relevant persons at SARS who can assist with speeding up the refund process. 

Surprising bad news

What most people may be horrified to learn is that the law does not compel SARS to pay out a refund within a specific time-frame. "But shouldn’t they pay within 21 business days of me submitting the tax return?” you ask. Unfortunately those 21 business days is internal SARS policy. They technically don’t have to do stick to it, but usually do so as part of their attempt to provide good service to taxpayers.  It’s actually rather impressive, if you think about it, that they’ve managed to stick to that deadline so regularly that people have assumed that they were legislatively required to do so. To add insult to injury, there is no law that forces SARS to complete an audit within a set period. Consequently, an audit could drag on for years. The law only states that they should provide the taxpayer with a progress report of the audit every three months. And SARS doesn’t seem to regularly comply with this rule. So Mr. Tax Practitioner gets bombarded with numerous weekly phone calls from a business owner asking "have you heard anything from SARS about my refund?” And the more phone calls he gets, the more incompetent he looks; all because SARS does not stick to the rules.

Security to the rescue 

So what can you do to get your refunds more speedily from SARS? The solution is so advantageous that to this day I wonder why more taxpayers do not make use of it. Remember earlier I pointed out that being audited means you don’t get your refund until the audit is completed? Thankfully, the lawmakers have seen fit to include an exception to the rule. The exact words read: 

"SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer”. 

Good news indeed. The great thing about this law is the word "must”. As in, SARS doesn’t have a choice in the matter. If you can provide security (in other words,. collateral) in a form that is acceptable to a senior SARS official, then SARS must pay the refund, even before they have finished auditing the particular tax return. This law was presumably enacted to allow SARS to protect itself from situations where a refund is paid, but an audit performed at a later date reveals that the refund should have been lower. In such a case, if SARS has some form of security, it will be able to recover the overpaid portion of the refund from the proceeds obtained from the sale of the secured asset. Since security is the domain of lawyers and not tax advisors, appropriate legal guidance should be sought in determining which assets to pledge or cede to SARS as well as how to go about it.

A possible point of contention in this whole issue is whether the security provided by the taxpayer would be accepted by SARS. Assets such as company equipment, vehicles and machinery may qualify, assuming they have been fully paid off. Conceivably, the easier it is to sell an asset, the more likely it will be accepted as security by SARS. In this regard, listed shares, unit trusts and fixed deposits come to mind. One SARS document specifically mentions a cash deposit as an acceptable form of security.  It is not difficult to cede these kinds of "financial assets”. Consequently, one is likely to succeed in getting SARS to accept them as security. What about entities that do not have assets which could qualify as security? An example of this would be a car rental company that is still paying off all its vehicles under an instalment credit agreement. None of those vehicles could qualify as security to provide to SARS because they have already been pledged as security to the bank.

The tax law seems to have an answer, though it could be considered somewhat debatable. The particular rule allows a senior SARS official to require shareholders, trustees, members or the management of those entities to sign a contract of suretyship. The logical extention to this rule is that a shareholder may offer his or her own financial assets to SARS as security for their business (which, you will remember, is owed a refund). It’s definitely worth a try in my opinion. 

Are there any risks to my suggestion that taxpayers provide SARS with security in order to expedite a refund? My opinion is that if your tax accountant has done an accurate job of calculating your refund, then there’s really no risk of losing your assets to SARS. That is why taxpayers should take the greatest care in choosing tax advisors. 

Consult a SAIT-registered tax practitioner for more advise on how you can get SARS to pay your refunds quicker. 



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