Delayed payment of Vat refunds continues to frustrate taxpayers

Taxpayers continue to experience pain, frustration and delays in their efforts to receive legitimate value-added tax (Vat) refunds, mainly because of the time it takes for the verification process to be completed.

The latest PwC Taxing Times Survey reveals that the South African Revenue Service (Sars) only manages to assess 36% of the Vat verifications that it calls for within the prescribed 21 days.

This is even worse than last year (45%) – and a lot worse than the 65% of verifications it managed to assess within the required timeframe in 2020.

Even more worrying, according to Elle-Sarah Rossato, head of PwC’s tax controversy and dispute resolution division, is that 47% of participants indicated that their Vat verification took between three and six months to conclude.

The survey shows that another 10% of participants had to wait between six and 12 months for the completion of the verification, and for 6% the wait was longer than a year.

Read: Sars cannot be allowed an indefinite time to complete a Vat audit

“This could have a detrimental impact on taxpayers’ cash flow and ability to conduct business,” says Rossato. She was speaking at a Tax Indaba session on the outcomes of the survey.

More than 30% of the participants believe they are selected for verification when a refund is due.

Read: Sars and the never ending cycle of inappropriate verifications

A participant in the session noted that they have been waiting for three months for a client’s refund of R7 million. “We will ask Sars to pay interest, about R76 000 per day.”

The survey measures corporate taxpayer’s recent experiences with Sars and has been done annually since 2018.

The latest survey was conducted during May, June and July this year, with 178 corporate taxpayers across 23 industries participating.

Better differentiation

Mark Kingon, head of stakeholder relations at Sars, says the impact of delayed refunds on businesses is a concern for the revenue service.

Sars needs to streamline its processes in order to differentiate better between fraudulent and legitimate claims, he adds.

There is however still significant fraud associated with Vat refunds, with people manipulating and crafting invoices and illegally presenting them to get refunds.

“That has a knock-on impact on people with a legitimate claim,” says Kingon. “The challenge is to differentiate between the two.”

He points out that 49% of cases where a verification has been completed yielded a “result”.

“That is significant. The question is whether it is a rand or R1 million, but a result is a result. It is a high percentage, which is worrying.”

Read: Vat compliance remains a key focus area for Sars

Gert van Heerden, senior manager at the Office of the Tax Ombud, adds that a large number of additional assessments end up in disputes or appeals – and the majority of these disputes and appeals are resolved in favour of taxpayers.

“Just having a result does not mean that the result is accurate,” says Van Heerden.

Incorrect calculations

Independent tax consultant Maarten Mittner says the increase in incorrect calculations by Sars officials is quite worrisome.

“They make the wildest calculations and then demand payment … Refunds are withheld because of all sorts of trivialities.”

He says the only solution is patience and knowing what the law says.

‘Crisis’

A small business owner who has not received a refund payment, despite their verification having been completed four months ago, contacted Moneyweb.

The refund is close to R140 000. This causes severe cash flow constraints and small companies may even be unable to continue trading.

“It is nothing less than a crisis. Some businesses have had to close their doors,” the business owner noted.

Read: The herd of elephants in the value-added tax room

According to the survey, 22% of participants found that refunds are paid within 21 days from submitting a return or receiving a note that the verification process has been completed. This is significantly better than the 9% who felt the same last year.

Ease of compliance

When participants were asked if it has become easier to comply with their tax obligations, 38% said it has. However, 45% disagreed and 10% strongly disagreed.

“These findings may suggest that taxpayers find the tax system or processes to be too complex for them to understand or navigate,” says Rossato.

Sars should consider an open channel – or direct communication with auditors – when they need advice on the interpretation and application of tax laws, she adds.

Read: One-sided tax laws violate taxpayer rights to fair administration

Participants feel there has been a slight improvement in terms of their trust in the tax authority, but mistrust is created by inconsistent communication between taxpayers and Sars. Around 40% said their trust in Sars has improved in the last 12 months.