Surely Not
We are all aware of the Tax Ombudsman’s (“the Ombud”) Report on SARS’ refund structure, issued last year. As a refresher, the Ombud found that refund delays were a systemic issue at SARS and that the current tax system does not sufficiently protect taxpayers. Further to this, SARS appears to be making excessive (and for the most part) unnecessary verification demands of taxpayers and which is reinforcing the impression amongst taxpayers that it is intentionally avoiding the payment of refunds.
My favourite example of this was a dispute between SARS and the taxpayer where SARS had initially removed money from a taxpayer’s bank account. Upon proving his case, SARS agreed to repay the funds to the taxpayer and into the bank account from which those funds were removed. Unbelievably, SARS then requested a verification of bank account details from the taxpayer. Let me repeat that – SARS requested a verification of bank account details for a bank account from which they themselves had just drawn funds.
Holding Horses
Two possible conclusions can be drawn from this practise. Either the SARS administrative system is grossly flawed or, more likely, the verification request was issued deliberately to delay paying the refund. Now, given that the vast majority of tax administration is relatively seamless, it is difficult to believe the actions of SARS, in our example, were anything but sinister.
The most frequent target of excessive requests for verification is Value-Added Tax (VAT) refunds. The frustration arising from SARS’s verification process on VAT is well documented and not only aggravates the taxpayer but also endangers the livelihood of the enterprise they operate. The Ombud also noted this second point. In particular, we have found that, for refunds exceeding the R1million amount, verification and similar mechanisms which result in delay are guaranteed.
Fraud is Real
Don’t get me wrong, we agree that some level of the SARS’ verification process is necessary to prevent fraudulent VAT claims. In a modern world with savvy criminals, fraud is a real concern, especially in South Africa. The integrity of the VAT system needs to be protected and no doubt SARS has the full support of the taxpaying community in preventing fraudulent depletion of our tax base through fraudulent VAT claims. There is no need to add to the ongoing municipal fund mismanagement that is currently the talk of the town.
Kicker
What is a taxpayer to do where SARS has no basis for a request for verification (remember our banking details example above)? For those throwing their hands in the air right now, I understand your frustration. Why should your legitimate VAT refunds be delayed each and every month?
The short answer is, it shouldn’t. At least, that’s what the Ombud has declared. We expect that the Nugent Commission is likely to come to the same conclusion. Refunds are being delayed because, ultimately, SARS does not want to pay them.
What should you do?
An age-old question when it comes to taking on the Receiver. Asked by many, answered by few. In our experience, the easiest route is to challenge SARS head-on. That means calling SARS to order and forcing their hand. Too many taxpayers believe that, once their refund is within the system that is SARS, there is no hope and it becomes a wait and pray type of game.
Our view to challenge SARS effectively? Engage an attorney who is a tax dispute specialist with expert knowledge of the system. Legal action is David’s stone in hand against Goliath.