Consequences When A Client Over Claims on VAT
05 March 2012
Posted by: Author: Mahomed Kamdar
Consequences When a Client Over Claims on VAT
What should SAIPA members be alerted to when they are aware that their clients deliberately under declare their output tax and/or fraudulently inflate input tax claims?
SAIPA members should take careful note of the implications of the Section 59 of the VAT Act which is crucial in these circumstances and reads as follows:
Any person who with intent to evade the payment of tax levied under this Act or to obtain any refund of tax under this Act to which such person is not entitled or with intent to assist any other person to evade the payment of tax payable by such other person under this Act or to obtain any refund of tax under this Act to which such other person is not entitled:
a) Makes or causes or allows to be made any false statement or entry in any return rendered in terms of this Act, or signs any statement or return so rendered without reasonable grounds for believing the same to be true.
b) Gives any false answer, whether verbally or in writing, to any request for information made under this Act by the Commissioner or any person duly authorized by the Commissioner or any officer referred to in section 5(1).
c) Prepares or maintains or authorizes the preparation or maintenance of any false books of account or other records or authorizes the falsifications of any books of account or other records.
d) Makes use of any fraud, art or contrivance what so ever, or authorizes the use of such fraud, art or contrivance.
e) Makes any false statement for the purposes of obtaining any refund of or exemption from tax; SAIPA members must also take into account the court findings in the case of Society of Advocates of South Africa (Wits Division) v Edeling 1998 (2) SA 852 (W).
The case refers to an application by the Society to remove Edeling from the roll of advocate. The advocate participated in a VAT scheme which had been declared fraudulent. The court held the view that the advocate’s name be struck off the roll. Our Members must also take into account Section 73 of the VAT Act as well because this clause is widely known as the anti avoidance provision. It permits SARS to ignore certain transaction in order to recover the input tax.
There are four requirements that should be fulfilled before provisions of Sections 73 of the VAT Act may be applied: There must be an arrangement.
The arrangement must result in a tax benefit and there by constitute an avoidance arrangement. Tax benefits includes any reduction in the liability of any person to pay VAT, any increase in the entitlement of any vendor to a refund of VAT and any other avoidance or postponement of the liability for the payment of any tax administered by the Commissioner.
The sole or main purpose of the avoidance arrangement is to obtain a tax benefit.
Since the avoidance arrangement is in the context of business,one of the following requirement has to be met:
- Abnormal means or manner
- Abnormal rights or obligations
- Lack of commercial substance.
- Misuse or abuse of provisions of the Act
Source: By Mahomed Kamdar, Technical Advisor, SAIPA (Tax Professional)