Taxpayers face ongoing frustration over Vat refunds

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FIFI PETERS: The South African Revenue Service manages to assess only around a third of Vat verifications it calls for, and this within its 20-day target. So most are not verified or assessed within the 21 days. In fact, some take months and some even a year. This does have implications on business, on cash flow, on the ability to operate normally, as well as on trust [of] the revenue service. We have Elle-Sarah Rossato, the head of tax controversy and dispute resolution division at PwC, for more on the story.

Elle, thanks so much for your time. What’s behind the reason for the delay in processing Vat returns, in your view?

ELLE-SARAH ROSSATO: Thanks Fifi, and good evening to your listeners. Maybe I’ll start off by telling you we do an annual, let’s call it, check-in with taxpayers around their experiences when dealing with Sars. This is the fifth annual survey that we’ve done, and the results are straight across various tax types, corporate income tax and Vat, as well as transfer pricing.

On the Vat front, as you were mentioning a couple of seconds ago, the results are really a mixed bag. So if we look at, for instance, post-submission of your Vat return – and that can be either monthly or bimonthly – the question was posed to our participants to say, ‘how often do you get verified?’ And 35% of our participants this year, mostly corporate taxpayers, said ‘we get verified on every submission’. Well, 31% said ‘whenever that return results in a refund, we get verified’. And that’s in line with the trend that we’ve seen developing over the last five years – that taxpayers do get verified mostly when there is refunding.

This year, there’s a slight increase on every submission, which is a worrying statistic because, as you mentioned, cash flow is then potentially held up by the revenue service, and that does impact businesses – small, medium, or large.

Read: Delayed payment of Vat refunds continues to frustrate taxpayers

FIFI PETERS: I suppose on the one hand one could argue that it is a great thing that Sars is crossing its T’s and dotting its I’s in terms of how much it pays out in refunds, particularly if we’re talking at a business level. It’s probably larger sums than [for] individuals who submit their returns.

But on the other hand, the question arises as to why it’s taking Sars so long to verify these Vat returns. Do you have an opinion on that, and whether the length of time can be improved?

ELLE-SARAH ROSSATO: It’s a two-pronged question. For the first one, I suppose, one must look at what Sars has been telling the media, and perhaps some of your listeners might have listened to Mr Mark Kingon – who is the head of stakeholder relations with Sars – at the recent Tax Indaba, where he indicated that these verifications that are being conducted on Vat refunds do yield results. He was saying, for instance, 39% of cases where verifications have been done have yielded a result.

Now they cannot quantify what that means, but we do know that they do verify R300 billion of returns on an annual basis, and they do look at two million returns on an annual basis.

They say there’s an intervention on only 10% of these returns being submitted.

And very much  in line with your comment that one must look at that, the flip side of the coin is saying there is lot of fraud involved with potential Vat submissions, [and] there’s a lot of abuse in the Vat sector. So [for] this reason they potentially verify Vat returns specifically with refunds.

On your question as to how this can be accelerated and how verifications can be accelerated, I suppose it’s a difficult one to answer because, if you look at our statistics on our survey that we’ve measured this year, the question was posed to say ‘post submission of all your supporting documentation to Sars. Was your refund released to you within 21 days?’ Only 36% said that was in fact the case. In prior years, the stats were even worse. So in 2021 45% said ‘within 21 days’ and in 2020 for as high 65% it wasn’t released within the 21 days prescribed.

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So there is an indication that just below 50% – in fact, 47% – of our respondents are saying it’s taking [the] revenue [service] between three and six months to verify their returns. Now, how do we improve on that? In last year’s budget, the minister of finance allocated R3 billion to Sars for the re-capacitation of the organisation… to re-engineer their technology – that includes their risk engine – as well as to obviously re-capacitate their workforce.

So we know that they’ve lost a sizeable amount of skilled individuals across the last couple of years, but we also know that their verification auditors are under immense pressure to finalise verification.

So the word on the streets is that the metrics are 15  minutes per verification allocated to an audit. That’s severe pressure to finalise a verification.

That could be attributed to why there are comments in the media saying, ‘mysterious Vat assessments, ridiculous amounts coming back, we don’t get our Vat refunds in time’. And [there is] the potential concern around the results coming out from revenue.

FIFI PETERS: Well, we do hope the situation can be improved and the fallout in terms of tax morality isn’t too severe, because that would be troublesome for everyone, including Sars.

But Elle, thanks so much for your time. We’ll leave it there. Elle-Sarah Rossato is the head of tax controversy and dispute resolution division at PwC.

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