Given the number of fraudsters and chance-takers in today’s market, hesitancy on the part of the South African Revenue Service (“SARS”) is present and well-understood. Rather than simply handing out refunds to every VAT claimant without careful scrutiny, the SARS official appointed to the matter is obligated to correctly apply the law, even though it may take a little longer than expected. These delays experienced may even be because of a lack of supporting documentation on the part of the taxpayer.

This is placing immense financial strain on the business fraternity, and with some businesses, we have seen that this comes down to survival, especially when the verification period of 21 days has been exceeded and the matter is still not finalised.

A balance needs to be struck

It can certainly be seen as reasonable where SARS perform the correct checks and balances and follow due procedure in confirming the correctness of VAT claims, before simply paying them out. It is, however, unreasonable that many businesses face financial uncertainty and liquidation as a consequence of long-drawn-out verification processes, taking longer than the respective 21 business-day period.

Various instances which result in unpaid VAT refunds

There are three instances which we have noted that results in unpaid VAT refunds after the filing of a VAT return, being:

1.   SARS disallows a taxpayer’s input VAT claim;

2.   SARS puts the taxpayer through the verification process, requesting certain documentation and a VAT schedule, which the taxpayer then provides, and then thereafter hears nothing from SARS as to the payment of the refund; and

3.   The credit sits on the taxpayer’s statement of account and no refund is received.

Verification process

Should SARS disallow a taxpayer’s input VAT claim, the taxpayer must then engage SARS through the formal dispute resolution process by filing a dispute/objection.

Should SARS select a taxpayer for verification, the taxpayer is required to provide SARS with the additional information within the 21-day period. The failure of SARS to pay the refund for a tax period within a reasonable time may be justified, as SARS need not process a refund until such time as the verification of the refund occurs.

SARS must keep the taxpayer informed and provide the taxpayer with a report indicating progress made during the verification process. 

You can expect payment of refunds above R100 within 7 business days of finalising the verification process. 

Taxpayer’s recourse

There are often no adequate reasons given by SARS for the delay in the refund being processed, and such is indicative of SARS’ conduct as discussed in the Tax Ombud’s report, where it was found that: 

“1.3. A number of complaints that the payments of refunds were unduly delayed were justified; the refunds could and should have been paid earlier. In such instances, no satisfactory explanations were given by SARS for the delays.”

Should the taxpayer:

a)      have provided SARS with the requested supporting documentation and the 21-day verification process has lapsed; or

b)     have a credit reflecting on their statement of account and no refund is paid out by SARS;

Then, the taxpayer may have no alternative but to take appropriate legal steps in order to obtain the refund legally due to them. 

Solutions for taxpayers

The SARS dispute process can be a very time consuming, expensive and frustrating exercise but does provide the necessary recourse when followed correctly. This is where proper planning and knowledge of the rules for dispute resolution under the Tax Administration Act improves the probability of a positive outcome significantly.

Businesses are therefore encouraged to seek robust assistance from a provider with a strong tax and legal component when structuring their dispute, so that they proceed strategically with the dispute resolution process from the outset.

We have seen in practice that where the correct process is followed, SARS remains amicable to engaging with the taxpayer and ensuring refunds are paid timeously.

Written by Andre Daniels, Legal Manager: Tax Controversy and Dispute Resolution at Tax Consulting SA