South Africa’s tax system witnessed an astoundingly high amount of value-added tax (VAT) refunds in the 2023/24 financial year, amounting to R342.9 billion – a notable increase of 7.5% from the previous year.
This impressive figure, however, has come under scrutiny as it was R7.9bn short of expected estimates, prompting discussions about the balance between efficient refund processes and necessary fraud investigations, according to Tax Consulting SA.
André Daniels, head of tax controversy and dispute resolution, and Colleen Kaufmann, senior tax attorney at the consultancy, yesterday highlighted the ongoing struggle faced by the South African Revenue Service (SARS) in reconciling its duty to conduct thorough checks on VAT claims while ensuring timely refunds to compliant businesses.
“SARS has a clear mandate to audit VAT refunds to combat fraud and abuse, but these necessary reviews cannot justify excessive delays,” they stated.
Delays in the refund process have been a long-standing issue affecting South African businesses, wreaking havoc on cash-flow and operational stability.
While SARS plays a vital role in guarding against fraudulent claims, taxpayers are entitled to timely refunds, as stipulated in both the VAT Act and the Tax Administration Act (TAA).
The TAA mandates SARS to complete verification or audit processes within 21 business days after the submission of a VAT return. In instances where additional time is required, the revenue service is obliged to provide valid reasons for the delay and keep taxpayers informed.
If these timelines are exceeded without justification, businesses may seek legal recourse, including the right to claim interest on delayed refunds.
Tax Consulting SA emphasised that businesses facing substantial delays in receiving VAT refunds have options available, such as the potential to invoke legal measures to compel payment of interest on tardy refunds.
“Section 45 of the VAT Act permits taxpayers to claim interest on delayed refunds if SARS does not release the refund within the designated 21 business days, contingent on the completion of a VAT return and the provision of any requested documentation,” Daniels and Kaufmann noted.
While acknowledging the need for SARS to be vigilant regarding fraud, they urged that taxpayer rights to timely refunds must not be overlooked.
“Businesses possess various legal protections to combat undue delays, and the provision of interest on late refunds serves as a critical safeguard,” they said.
They also emphasized the importance of businesses collaborating with tax attorneys to ensure SARS meets its obligations, thereby promoting fairness and transparency within the VAT refund process.
The results from PwC’s Taxing Times Survey 2024 further underlined the myriad sentiments among taxpayers regarding compliance with tax obligations.
Notably, 46% of respondents expressed disagreement or strong disagreement about whether compliance had become easier.
Nonetheless, approximately half indicated that SARS’ service delivery had improved, with 62% reporting receipt of their refunds within the stipulated 21 days — a positive step towards enhancing operational efficiency.
However, a concerning 38% of survey participants reported that refunds were either not received within the required timeframe or were only obtained after making follow-up inquiries.
This suggests there is room for improvement in the timeliness of refunds, and stakeholders hope this upward trend in SARS’ refund efficiency will continue into the future.
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