BUSINESS LAW &TAX
OCTOBER 2021 WWW.BUSINESSLIVE.CO.ZA
A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW
VAT audits a taxing process
are often the victims •ofVendors Sars’s random time frames Annelie Giles ENSafrica
T
he SA Revenue Service (Sars) has set its sights on noncompliant taxpayers through an active and focused compliance programme. It seems that Sars has realised the enormous powers it enjoys under the Tax Administration Act, 2011 (TAA) to administer tax laws and enforce compliance and it has been going from strength to strength ever since. This is particularly evident when it comes to the audit and verification of VAT refunds. But is the law allowing Sars perhaps too much power when viewed against taxpayers’ rights to conduct business?
ENTITLEMENT VS ENFORCEMENT
The design of the SA VAT system is such that it entitles a vendor to claim VAT on expenses that have been incurred in the course or furtherance of its taxable enterprise. A vendor’s entitlement to a VAT refund claim is subject to certain requirements and the vendor bears the burden of proof.
BEAR THE BURDEN
On the other hand, Sars’s right to conduct an audit of a taxpayer’s tax affairs is embedded in Chapter 5 of the TAA, which contains various enforcement tools ranging from verification to audit to criminal investigation. In practice, however, there seems to be difficulty in distinguishing between errant compliant taxpayers and errant criminal taxpayers. The result is that a broadbrush approach to enforcement is emerging that is affecting the timing of VAT refund payments, with trends reminiscent of the findings from the erstwhile Nugent Commission.
MUSTS VS NEED NOTS
Section 190(1) of the TAA requires that Sars “must” pay a refund if a person is entitled to it together with interest thereon. However, section 190(2) provides that Sars “need not” authorise a refund until such time that a verification, inspection, audit or criminal investigation of the refund has been finalised. In other words, the subsection preserves Sars’s right to initiate and finalise an audit of a refund before the refund is paid out. The trouble is that there is no prescribed time period
/123RF — RUDALL30 within which Sars is required to finalise any such audit activities. The TAA is silent on this aspect and the ValueAdded Tax Act, 1991 (VAT Act) merely provides that interest starts accruing on the outstanding refund if it is not paid within 21 business days from the date on which the particular VAT return was received by Sars. Even so, interest may be suspended in certain prescribed instances (for example, if a vendor has any outstanding tax returns or has not furnished its banking
details to Sars).
GENERAL AUDIT VS AUDIT OF THE REFUND
Notwithstanding that the audit must be “of the refund” before Sars is entitled to withhold payment thereof, section 190(2) of the TAA is often (erroneously) interpreted to mean that Sars is not required to pay a VAT refund if any aspect of that person’s tax affairs is under audit, until such time that the audit has been finalised. This practice has coincided with a recent increase in
the use of special “stoppers” on the Sars system that block the payment of any VAT refund claims made by the vendor after the date on which an audit has been initiated, even if such subsequent VAT refund claims fall outside the period that is under audit. This notion has also had the effect that VAT refunds are being withheld on a large scale where Sars is conducting an industry-wide audit as opposed to an audit “of the refund”. Recent trends noted that support this notion include: whose VAT ● Vendors returns are frequently in a net VAT refund position will receive a verification request each and every time they submit a VAT return to Sars. The VAT refund will not be paid out until the verification is finalised. This carries on for multiple tax periods without any indication that the vendor is able to build up a good compliance history that could relieve it from constant Sars scrutiny. ● The initiation of a VAT refund audit will in all likelihood mean payment of any subsequent VAT refund claims will automatically be withheld until the audit of the initial VAT refund is finalised. When a vendor inquires with the Sars call centre, it is usually informed that a stopper has been placed on the system with no indication as to when the stopper will be
lifted or when the audit will be finalised. ● It has also been noted that a vendor will receive a notification of audit and a related request for relevant material in respect of the same VAT returns that were previously subjected to verification requests, even though the verifications were finalised and no adjustments were made.
IN SOME INSTANCES, AN AUDIT WILL BE CONTINUOUSLY EXTENTEND ● In some instances, an audit will be continuously extended to include an additional tax period each time the vendor submits a VAT return to Sars (for example, an audit may start off as relating to VAT refund “A to E” but will be extended to include VAT refund “F” the moment this VAT return is submitted).
DELAYED VAT REFUND CLAIMS
But VAT is a tax on the final consumer. By design, VAT is not intended to be a cost to business. It merely has a cash flow impact where goods or services are acquired by the vendor for taxable business CONTINUED ON PAGE 2