Author: Amanda Visser (BDlive)
Delayed refunds on Value-Added Tax (VAT) have increased significantly, causing cash flow problems for especially small and medium-sized enterprises.
This is according to tax practitioners interviewed this week, who said it was also increasing the cost of doing business as businesses need to pay professionals to get back what had been rightfully theirs in the first place.
Victor Terblanche, chairman of the South African Institute of Tax Professionals’ (SAIT’s) VAT committee, said the VAT Act did not provide for a timeframe for the payment of VAT refunds, or a timeframe for the finalisation of audits.
"The act does provide for the payment of interest if the refund is not paid within 21 days following the submission of the VAT return," said Mr Terblanche.
"The act is quite clear. It does not say that SARS has a discretion to pay interest. The act says interest shall be paid at the prescribed rate."
According to the South African Revenue Service (SARS), 54% of refunds are made within 48 hours, 63% within 14 days, and 88% of refunds are made within 60 days.
Craig Hirst, CEO at Trident Tax and Accounting Solutions, said it was not an issue of SARS officials not getting through the workload.
"It is definitely an issue of delaying refunds and playing the money game ... Queries to SARS end up in vague answers with no help being offered," he said.
Mr Terblanche said he claims for a tax audit.
"In some instances we find that SARS also then raises assessments without requesting information or providing the taxpayer with a letter of findings to enable him to respond to audit queries."
He said this escalated the cost for small businesses, as they then had to follow the objection process, which meant it took even longer to get their refunds back.
Mr Hirst said it was "clear" that SARS was on a drive to collect, and hold onto as much cash as possible, even if it meant "stepping outside the act".
"If a taxpayer must write to SARS to get interest on a late refund then SARS is clearly playing the numbers game — maybe one in 20 will know or think of writing that letter. These are dirty tactics from an organisation that is supposed to be an example of the law."
Mr Terblanche said the act previously contained a section that stated that SARS had to supply the vendor with written reasons when a refund was not paid.
"This section has been scrapped clandestinely from the act."
There are certain instances where SARS does not have to pay the interest, but Mr Terblanche said many of the provisions were either outdated or not aligned with the Tax Administration Act.
One instance is when SARS has not been provided with the banking details of the vendor, and cannot verify them.
However, he said the reality was that the vendor would not have been able to register as a VAT vendor without SARS obtaining the business’s banking details and being able to verify it.
In response, a SARS spokesman said: "It must be noted that not all refunds are authentic and fraud and identity theft is rampant. SARS has introduced a system of verifying banking details with the banks and if the information in the possession of SARS is not aligned with the information in the bank, SARS will not pay out such a refund."
This may also lead to a delay in paying out the refund where SARS has not been notified of a change of banking details; the delay "was not occasioned" by SARS, but by the vendor who did not comply with the Tax Administration Act.
"In this case, no interest is payable to the vendor and the vendor will have to convince SARS that the delay was not occasioned by the vendor but by SARS.
"Also, invalid or incomplete documentation will lead to a delay in refunds and SARS communicates with vendors to rectify this noncompliance to pay the refund as speedily as possible."
SARS also said there was no incentive for it to delay payment of a valid refund, since the interest costs associated with the payment of interest was a cost to the National Revenue Fund.
Both Mr Terblanche and Mr Hirst expressed concern about the effect on the economy as small businesses suffered cash flow problems because of the delayed refunds.
"Business is losing trust and faith in SARS," said Mr Hirst.
Rodney Smith, director at Liandor Financial Accountants, said they were distrustful of SARS, particularly when it came to VAT refunds.
"I do not believe that any business person begrudges the principle that VAT returns need to be audited from time to time. However, at this time (outside of fraud investigations) the only audits that appear to be done are done on cases where there are VAT refunds," he said.
"Once the audit is triggered, the hassles around the slow speed of the process, the repeated questions and repeated requests for additional documentation, and the outright deliberate delay in paying refunds all gives rise to significant animosity and distrust towards SARS."
He said taxpayers are loath to take SARS to task. SARS is aware of this and seems to rely on the high cost of taking legal steps to defend taxpayer rights.
"Taxpayers repeatedly voice a fear of being victimised ... There are clients who experienced extreme prejudice, but are unwilling to have their cases quoted," said Mr Smith.
This article first appeared on bdlive.co.za.