Tax / 26 November 2018, 6:00pm / Schalk WP Pieterse and Dr Daniel N Erasmus
JOHANNESBURG - The amount that the increase in VAT announced on April 21 was expected to add to state coffers was R23billion. However, the accumulated backlog of VAT refunds amounts to R20bn.
So the revenue which the state gained on the roundabout, it lost on the swings.
Not to mention the negative effect on businesses, some of which have been waiting for up to three years for a tax refund - hardly a sustainable business model.
The Nugent Commission found that the SA Revenue Service (Sars) arbitrarily delayed tax refunds to inflate collection figures.
The illegally withheld VAT repayments amounting to R20bn have to be refunded by March.
Where does that leave Sars and business owners?
The R20bn will be taken from an already beleaguered national purse to redress the VAT refund backlog.
Sars also often defends these claims in instances where taxpayers are forced to approach the courts, ironically with the taxpayers’ money.
The fact that taxpayers have to become litigious to recover funds, where these refunds are in fact legally due to them, is a gross maladministration on Sars’ part.
Small and medium-sized businesses often cannot afford these costs and end up with serious financial hardship and cash flow issues, which in turn forces many to close their doors.
Joan Stott, the policy manager at The SA Chamber of Commerce and Industry, agrees: “The delay on VAT refunds may have placed additional pressure on businesses. They may have had to make decisions around fixed costs such as employees, rental and running expenses.”
According to the tax ombudsman, and according to the VAT Act, valid VAT refunds should be paid back within 21 business days.
If, after 21 business days the VAT refund has not been made, the statutory interest rate will start to run. It should, however, be noted that this time period is automatically suspended if a taxpayer's tax affairs are not in order.
It should be noted that where a taxpayer can provide adequate security, a taxpayer can request that a refund be made while an audit or verification process is being finalised.
If Sars refuses to make a valid refund, (which is unlawful) the taxpayer can bring an application in terms of the Tax Administration Act and the Promotion of Administrative Justice Act to compel the refund, and seek a cost order against Sars, but only if the taxpayer is tax-compliant in all other respects.
This requires costly tax experts.
Taxpayers can approach the office of the tax ombud but the ombud has proven to be very slow and/or ineffective to resolve them at all.
This is why tax-risk insurance is available, which covers the cost of tax experts, including tax attorneys associated with such a challenge.
Withholding VAT refund, where it is legally due and payable to the taxpayer, is tantamount to theft.
The most important advice to consumers is to know the constitutional rules regarding VAT refunds and to get professional advice when it comes to claiming what is rightly theirs.
Attorney Schalk WP Pieterse is a specialist in administrative law, tax law and constitutional law, and Prof and Dr Daniel N Erasmus is an international tax attorney who holds a PhD in tax and constitutional law.