Taxpayers have complained about delays in refunds, especially with VAT. Picture: Leon Nicholas
Taxpayers have complained about delays in refunds, especially with VAT. Picture: Leon Nicholas
File picture: Ziphozonke Lushaba/Independent Media
File picture: Ziphozonke Lushaba/Independent Media

JOHANNESBURG - The  Office of the Tax Ombud has found that the withholding of tax refunds by the South African Revenue Service (Sars) had become a systemic problem. 

The resulting financial hardship to taxpayers because of the delays has been “drastic” in some instances, leading to near closure of businesses.It has found that the tax authority in some instances “acted outside of the legal framework”, which caused financial hardship to taxpayers. It ordered Sars to cease any unlawful practices. 

The ombud initiated its investigation after receiving 500 complaints relating to the delay in payments within a period of six months. The Tax Administration Act allows  the ombud to investigate complaints which indicate that there is a systemic problem.

Judge Bernard Ngoepe said in his final report released on Monday that while the number of complaints received was important, this was not necessarily indicative of the “financial magnitude or impact of the problem” because one claim might run into millions. Sars stated in its response to the tax ombud that given the total universe of refund related complaints the number of complaints represents less than 1% of the refunds Sars processed over the same period.

File picture: Ziphozonke Lushaba/Independent Media

Sars said it was unfortunate that the Tax Ombud had arrived at the conclusion that the obstacles were systemic in their nature, "As they are the exception rather than the rule".  

According to Sars 92% of Personal Income Tax refunds were actually paid within two days in the 2016/17 year. The ombud’s response was that the impact of delayed refund on each of the 1percent taxpayer could be, and had in some cases been, devastating and even lead to near closure of businesses due to lack of cash flow. Job losses has occurred.

“The problem therefore remains serious . . . Therefore, the withholding of these refunds may have a significant impact on the collected revenue, and a devastating negative impact on the finances of individual taxpayers in varying degrees.”

Taxpayers complained that Sars employed certain mechanisms to unduly delay, or even avoid, paying out refunds due to them. “They argued that, in this respect, the tax collection system was being implemented unfairly by Sars. This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued,” Ngoepe stated in his report. 

Also read: Sars deliberately delayed our tax refunds says DA after report

Chérie Carstens-Petersen, a tax technical operations manager at the South African Institute of Tax Professionals, said Sars seemed more concerned about fraudulent activities than assisting compliant taxpayers. “We can understand that fraud is a problem, but Sars cannot cripple businesses because of a few bad apples,” she said. One of the practices which was highlighted in the report referred to the raising of assessments to reduce the overpayment of tax (credits) to zero for the 2016 and 2017 financial years. 

Ngoepe said the information provided by Sars did not give a complete picture of the full financial impact this practice had  had on refunds. “What is important to note is that from August 2016 to March 2017 only, more than R220m was reduced on PAYE (employee’s tax) in this fashion,” the ombud says. “While this number may seem trivial in relation to more than R1trillion revenue collected by Sars, the practice of raising assessments solely to absorb credits simply because a taxpayer has not explained an overpayment is of grave concern.” 

The practice to raise assessment for the purpose of absorbing credits which should otherwise be paid out to taxpayers, should be discontinued, Ngoepe stated. According to the report 35% of the cases falling in the refund category of R500 000 and more are older than 10 months. This translated to R9.3bn or 22%, of the total value of refunds in this category being older than 10 months.

- BUSINESS REPORT