VAT Refunds – The Sword in the Stone
It is one of those things you need to personally experience; otherwise you will never fully comprehend how frustrating things can become.
When you get audited by certain SARS officials before payment of your Value-Added Tax (VAT) refund, expect the long road and frustration, often when your business really needs the cash flow.
This is not an isolated occurrence for frustrated taxpayers either. In his budget speech of 20 February, Minister of Finance, Tito Mboweni, stated that SARS is committed to reducing the R31 billion VAT backlog that currently exists.
Clearly, the frustration felt by taxpayers is appropriate given such a massive backlog.
But, Why Is This So Difficult?
There are many theories – ranging from administrative deficiencies to internal targets and one can speculate until blue in the face. But that doesn’t solve the problem that frustration across the board has hit its peak with respect to VAT refunds being paid (or, rather, not paid) by SARS.
We must caveat here that there is always another side to the story. VAT refund fraud has happened, it may even be rife, especially as counterfeiting can create a near perfect-appearing tax invoice.
It is understandable that, given the number of fraudsters and chance-takers in the market, hesitance on the part of SARS is present, rather than simply handing out refunds to every VAT claimant without careful scrutiny. The SARS auditor is obligated to correctly apply the law, even though it takes a little while longer than expected.
The Perfect Storm
Many compliant taxpayers feel that they are mistreated on their VAT refunds. This may be partly due to the perfect storm of a shrinking economy, financial strain, administrative delays and perceived deliberate delays which occur when SARS owes you money, compared to their sudden efficiency when you owe them.
These delays and difficulties are placing financial strain on the business fraternity, and with some of our clients, we have seen that this comes down to survival.
The backlog mentioned earlier must surely be putting many small businesses to rest. Which will have the knock-on effect of disrupting the economy further and so forth and so on. If this continues, at what point will the effects be felt by more sizeable enterprises?
SARS Auditors and Dispute Resolution
So, how do we deal with this perfect storm and ever-growing frustration?
Taxpayers are expected to be courteous with their SARS auditors, but what do you do when you are faced with bureaucratic hoops created by constant requests for documentation that support the rebate, with an apparently vexatious SARS?
The Tax Administration Act, read with the Rules promulgated under section 103, provides a very strong and balanced SARS dispute resolution process.
The typical accountant or attorney can deal with the process of Alternative Dispute Resolution, complaint escalation and even Tax Ombudsman submission, but we find that this sometimes has limited results.
When you know you are correct, there is always the right of access to the Tax Board or Tax Court. It is never a good idea to approach the court on weak facts, so, typically, it is our view that you have your case “tested”, which is a proper review of the merits.
Where you are one of the compliant taxpayers, consider fast tracking your matter by taking cognisance of the following points:
- Submit an appeal without the “ADR” option. This means that the matter goes straight to Tax Board / Tax Court and everyone knows you mean business. ADR is frequently utilised for the purposes of settling and one has a different discussion when one is after an outright win.
- The correct Tax Board / Court application normally gets resolved way before stepping into the courtroom. Highly competent persons concede before SARS decides to litigate and this is almost always a totally different experience than dealing with an auditor who does not want to release a refund.
- Do not take on the legal route lightly. It is essential that you comply with the Rules to the letter to ensure your matter is compliant so that no further administrative delays occur, or, even worse, that you have an adverse decision due to an administrative failure; and
- Your well-constructed heads of argument submitted with your notice to the appropriate forum should be presented to SARS’ National Appeals Committee by the assigned clerk or court specialist for the purpose of deciding on the appropriate steps for SARS to take.
The legal route is very much embedded in our tax law as part of the Despite Resolution process and we foresee that the correct representation will become an integral part of resolving complex and high-value SARS matters.
Kelsey Jayes is a Tax Attorney and Christopher Renwick is a Senior Tax Attorney at Tax Consulting SA.