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VAT

Sars defends its handling of VAT refunds and taxpayer disputes

The South African Revenue Service (Sars) has defended the way it handles VAT audits after this issue, as well as the time taken to resolve disputes, was raised by the Tax Ombud in Parliament last week.

Tax Ombud Judge Bernard Ngoepe briefed the National Assembly’s Standing Committee on Finance and the National Council of Provinces’ Select Committee on Finance after MPs sent him a list of questions about Sars’s service.

The issue of the independence of the Office of the Tax Ombud (OTO) from Sars and the legal basis on which the office operates also came under discussion.

Read: Finance MPs want action on Tax Ombud’s independence

Judge Ngoepe said his office has “repeatedly” raised the matter of withheld VAT refunds with Sars.

For example, he said, Sars “wrongfully” withholds VAT refunds on periods that are not included in the period being audited. When taxpayers complain, Sars extends the scope of the audit to include periods excluded from the initial audit, “in an attempt to remedy its non-compliance with the law”.

In one case handled by the OTO, Sars took almost two years to finalise the audit while withholding refunds of more than R70 million. Sars revised the assessments to R1.6m and paid more than R6m in interest on delayed refunds.

Judge Ngoepe said Sars did not respond to the OTO’s request for the legal basis on which it could withhold refunds for periods not being audited and simply extended the scope of the audit when the OTO raised the issue.

He said the High Court criticised this modus operandi in Rappa Resources (Pty) Ltd v CSARS.

Over the past four years, an average of 76% of taxpayer complaints attended to by the OTO related to tax refunds, dispute resolution, verification, audits and assessments, the judge said.

Although the number of complaints overall has not increased, the proportion of complaints from tax practitioners has risen.

Sars’s inefficiencies in dispute resolution affected all taxpayers, but based on the empirical data, companies were affected more than other taxpayers, the ombud said.

The prescribed time for finalising objections was 60 business days after the objection was lodged, but in the case of corporate income tax returns, Sars was taking, on average, more than 120 business days to finalise objections, according to Judge Ngoepe.

Read: How to increase the likelihood that your objection to a tax assessment will succeed

Between February and March this year, the time it took for Sars to finalise VAT objections increased from less than 40 business days to more than 100 business days.

He said the time it took Sars to finalise appeals was a “major concern”.

A typical appeal should not take more than 120 business days to finalise: 30 days to notify a taxpayer whether an appeal is suitable for alternative dispute resolution (ADR) and 90 days to finalise the ADR process.

On average, it takes Sars more than a year to finalise an appeal.

The time to finalise VAT appeals has “suddenly” spiked from less than 400 business days to more than 600 business days, Judge Ngoepe said.

‘Refunds aren’t withheld for no reason’

Sars Commissioner Edward Kieswetter told the committees he wanted to make it “very clear” that Sars has no interest in holding back a refund without cause.

He said Sars has reduced the number of cases it selected for verification, but it has increased “the value it extracted” in terms of impermissible refunds.

In 2017, Sars detected R6.5bn in impermissible refunds from 1.5 million cases; in 2021, almost R8bn from 1.2 million cases; and in the past year; almost R10bn from 1.4 million cases.

He said there was “no evidence” that Sars was holding back refunds in an attempt to influence revenue collection outcomes: last year, Sars paid out R20bn more in refunds than had been estimated in the Budget.

Kieswetter said there was a legal basis for Sars to withhold refunds when multiple years were investigated in an audit. “What we may not do is to hold back a refund before or if we have not informed a taxpayer of an audit.”

This year, one out of 10 VAT submissions went for verification, with an average turnaround time of 27 days, and 55% of those cases were linked to late submissions by taxpayers. These verifications yielded more than R40bn that would otherwise not have flowed to the fiscus, he said.

Mark Kingon, Sars’s head of stakeholder relations, integrity and anti-corruption, said Sars’s system was set up so that a refund was paid for a period that was not under audit.

However, it was possible for periods to be joined in terms of an audit, in which case the refunds would be withheld, “but that is only in cases where there is a risk that is in process and has been identified”.

Sars took allegations of the malicious or unjust withholding of refunds seriously, and any such cases would be taken up and dealt with. “We operate strictly in accordance with the law,” Kingon said.

Kieswetter said there has been a decline in the number of disputes. In 2018/19, Sars received 200 000 objections and 11 300 appeals, while this year, it received 136 000 objections and 8 251 appeals, which was 1.45% of all returns submitted, below the OECD norm of 10%.

He said 90% of disputes were finalised within an average of 43 working days, while the allowable time for a simple dispute was 60 days, and a further 45 days if it was complex.

‘We treat all taxpayers the same’

DA MP Dennis Ryder said Sars handled most issues timeously and efficiently, but the “wheels fell off” once a dispute was more complex.

He said taxpayers found it “incredibly difficult” to communicate with Sars, to find the right person to talk to, and to get hold of someone who understood the issues a taxpayer wanted to address.

Ryder said taxpayers wanted to be treated fairly by Sars, and taxpayers became angry and frustrated when they perceived they were not being treated fairly – because they were audited every year, did not receive VAT refunds timeously, or had hefty penalties levied against them for non-compliance – whereas it seemed that other people did not face the same consequences.

In this regard, he said taxpayers wanted to know what action would be taken against the ANC for not paying PAYE deductions to Sars, while the “elephant in the room for Sars today” was the robbery at President Cyril Ramaphosa’s game farm.

Kieswetter said he could assure Ryder that there were “no elephants or any animals in the room”.

“We treat every taxpayer, regardless of their standing in society, in the same way, and you can hold us to that […] We will administer the law without fear, or favour, or prejudice.”

Kieswetter said he would “not tolerate any behaviour that metes out any treatment to any taxpayer that cannot be explained, based or defended on the principles of fair treatment”.

He said the Tax Ombud’s complaint figures should be seen in the context of the significantly higher number of returns Sars processes.

Most taxpayers experience “seamless service” from Sars, with the result that every instance of failure comes under the spotlight, because taxpayers’ performance expectations are high.

Sars regarded every instance of service failure “as one too many”, and it accepted that it had to do a lot more to clean up the third-party data it received from employers, medical schemes and financial institutions, Kieswetter said.

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