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New Criteria For Remission Of Interest

Sunday, 30 May 2010   (0 Comments)
Posted by: TaxFind™
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New Criteria For Remission Of Interest

As from 1 April 2010, "financial loss to the state” and "no financial benefit to the vendor” are no longer criteria for SARS to remit interest on late payment of VAT

Where a vendor has failed to pay the VAT due in respect of any tax period within the prescribed period, the vendor is liable for a penalty amounting to 10% of the outstanding tax. In addition, where payment is made on or after the first day of the month following the end of the period allowed for payment of the tax, interest is payable on the outstanding tax.

This interest is calculated at the prescribed rate of interest. Currently, the Commissioner's discretion for remitting any interest is based on whether it can be shown that either:
•The failure to pay on time did not, having regard to the output tax and input tax relating to the supply in question, result in any financial loss (including loss of interest) to the State; or
•The vendor did not benefit financially as a result of the non compliance (taking interest into account).

In other words, the vendor could elect to use one of two options that were available in order to convince the Commissioner that the interest imposed on the under payment of tax should be remitted. With effect from 1 April 2010, the Commissioner's discretion to remit interest will be based on a single test that will determine whether interest imposed on the late payment of VAT will be remitted. The decision to remit interest will be exclusively determined by whether the late payment was as a result of circumstances beyond the vendor's control.

This test is evidently very different from the previous two options available to a vendor. Contrary to the legislation prior to the amendment, in future it is only where a vendor does not have full control over all the processes necessary to return and pay its VAT within the required time frame, that it will be able to avoid an interest charge, and in doing so, benefit financially. An example of such circumstances envisaged would be when a vendor's payment instruction could not be carried out by the vendor's bank because of failure in the banking system.

An interpretation note will be issued shortly by SARS, setting out the circumstances under which interest may be remitted.

Source: By  Deloitte VAT Department (Taxbreaks)



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