Claiming and determining the veracity of VAT refunds is a perennial headache for both the taxpayer and Sars. In this edition of Business Law Focus, host Evan Pickworth talks to Annelie Giles, tax manager at ENSafrica, about the extent of the problem and possible solutions.

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By design, VAT isn’t intended to be a cost to business. It merely has a cash flow impact; the vendor is entitled to claim the VAT back from Sars where goods or services are acquired by the vendor for taxable business purposes. VAT refunds stimulate business activity, but when they are locked up in audit activities the much-needed cash flow is delayed, sometimes for months.

It’s not surprising, then, that vendors are increasingly frustrated frustration is mounting when VAT refund claims are met with suspicion and close scrutiny.

Business Day law and tax editor Evan Pickworth. Picture: REBECCA HEARFIELD
Business Day law and tax editor Evan Pickworth. Picture: REBECCA HEARFIELD

There is no deadline for concluding an audit, which creates the impression that there is a lack of commitment or urgency, even where no indication of wrongdoing has been advanced (audits can be kept in abeyance seemingly for years).

However, in the recent matter of Rappa Resources (Pty) Ltd v CSARS, the High Court cautioned that “Sars cannot be allowed an indefinite time to complete an audit” and, accordingly, the court directed Sars to conclude the audits by no later than a specified date. The Supreme Court of Appeal reinforced this judgment by declining SARS’s application for leave to appeal.

Striking a balance

The taxpayer may have won this round, but litigation is costly, lengthy and not without risk. It’s not a feasible option for many and, in some instances, vendors may not emerge intact. What is needed instead is a balance, in law, between SARS’s right to conduct an audit and a taxpayer’s constitutional right to conduct business. Clear and reasonable time frames need to be outlined; extensions should be the exception and only invoked when warranted in limited circumstances.

It is welcoming to note that various stakeholders are engaging with National Treasury and Sars in this regard. But until SARS’s powers in this area are curtailed and the balance restored, there will continue to be a tug of war between it and taxpayers over VAT refunds, with the vendor at a distinct disadvantage.

Join Annelie Giles at the coming Tax Indaba, where she will participate as a panellist on the topic Value-added tax refunds — A headache for both Sars and taxpayers, on September 22 at 9:45am.


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