It seems that there is not a single elephant in the value added tax (VAT) room, but a whole herd. One of the biggest elephants is the lack of specific time frames within which the South African Revenue Service (Sars) must complete an audit or verification process.
Delays in audits and verifications result in the withholding (in many legitimate cases) of VAT refunds, which in turn can lead to insolvencies.
Read: Sars cannot be given indefinite time to conduct a VAT audit
According to Annelie Giles, tax manager at ENSafrica, while Sars may not be too limited in administering tax laws and enforcing compliance, he cannot go on with an audit for years and withhold refunds while doing so, especially if there is no indication of wrongdoing. .
“We need a set of deadlines in legislation where extensions are the exception rather than the norm,” she said at the annual Tax Indaba conference hosted by the South African Tax Institute ( Knows).
‘Refunds’ in series
Giles added that the current lack of deadlines creates the perception that there is no commitment to finalize an audit.
Frikkie de Jager, director of indirect taxes at SecuriTax, said it also appears that some industries are audited more often than others. He referred to a customer who was audited 10 out of 12 times after submitting VAT returns.
De Jager noted that there are “serial refunders” such as mining companies and exporters for whom the VAT law specifically allows them to claim refunds. It is in the “Law on the DNA of VAT” to allow them to claim the input VAT as a deduction.
Then there are the “non-regular repayers”. He said he would like to assume that at this point Sars will be able to distinguish between regulars and non-regulars.
Burden of proof
Another elephant in the room is the perceived shift in the burden of proof. Giles said that in most cases VAT law requires a valid VAT invoice and, in the case of an exporter, that the goods have left the country. However, due to the prevalence of fraud and corruption, VAT refunds have become a priority area.
Even though the law does not oblige the taxpayer to prove that the supplier has paid VAT to Sars, or to prove the origin of the goods and if they come from a legitimate source, it seems that this is now required in practice. .
“A VAT invoice is no longer enough,” said Giles.
“We find more and more the situation where Sars asks for evidence or evidence that is not prescribed by law. As a creature of rights that can be seen as an excessive attack on power. ”
Ernie Lai King, director of 1 Road Consulting, says everyone realizes that crime and corruption are a scourge. “We cannot deny it. But as we talk about the institutions that are supposed to do the job of finding, prosecuting and putting criminals in jail, we fail. ”
He respectfully added that it appears Sars is unable to pinpoint exactly where the problem is and as a result he is simply withholding refunds.
Read: Corporate taxpayers on their experiences with Sars
Broad approach to law enforcement
Giles agreed and said that another elephant in the pot room is the struggle to distinguish between “compliant errant taxpayers” and “errant criminal taxpayers”. The result is the emergence of a comprehensive approach to law enforcement.
“We need a solid methodology to separate good apples from bad apples quickly and efficiently. We can’t call it a win when compliant companies are literally audited to death just for operating in a specific industry. ”
Read: Sars behaves badly: the tax service exercised “unreasonable discretion” by refusing the sanction
Mark Kingon, head of stakeholder relations, integrity and anti-corruption at Sars, acknowledged the impact of withholding valid refunds and said the revenue department is fully aware of the catastrophic impact on a business.
“We really have to balance the seamless element by making it easy for people. [to comply], but the risks are significant at the moment. This includes the risk of illicit trade in goods and manufacturing of invoices.
Kingon says that registering front companies for VAT purposes, when there is no business giving rise to the registration, is a “daily occurrence.” Sars is committed to conducting audits within a reasonable timeframe, and even if that fails, there are successes too.
Johnstone Makhubu, director of revenue at Sars, said that due to his audit processes last year, he was able to prevent the payment of R57 billion in refunds that were not legitimate.
“But there has to be a differentiation of taxpayers and the way we profile them. We are reviewing our case selection methodology to make sure it is better.
He said it was not in Sars’ best interest to withhold legitimate refunds because as a revenue officer he must record these funds as a contingent liability in the financial statements.
De Jager also raised the issue of interest payments to taxpayers when an audit or audit drags on and the generic letter sent to taxpayers alerting them to an audit or audit – where there is no distinction between a mine with millions of invoices and a salesperson with much less.
Makhubu said the issues raised were on Sars’ management radar. “They worry us and we are infusing solutions into our value chain to make sure we pay attention to them. ”