Frustration over delay in SA’s tax refunds

While 90% of tax returns are processed without further verification, those taxpayers identified for scrutiny find themselves caught in an administrative nightmare. Most of them are small businesses for which a significant delay in refunds – especially for VAT – has serious financial implications.

One business owner who contacted City Press had been waiting for over a year for a VAT refund of R1 million. A tax practitioner complained that she had a client who was constantly being audited and experienced delays of six months on VAT refunds.

The returns are always correct and the client is eventually paid, but, with a total of R3 million in VAT refunds outstanding, it has a significant impact on the cash flow of businesses.

Another tax practitioner told City Press he had 12 clients who were waiting for tax refunds.

“The SA Revenue Service (Sars) requested supporting documentation. It was submitted, but now – after 60 business days – Sars still hasn’t finalised the verification,” he said.

The tax practitioners who spoke to City Pres said that, in such instances, no satisfactory explanations had been given by Sars for the delays.

One practitioner was dealing with a case in which Sars had the return for six months before asking for documentation for an audit.

“It asked for all the same documentation we’d already submitted,” said the practitioner.

Another practitioner complained that there was no communication the returns had been submitted.

“Sars never issues any correspondence to inform us that it’s put a stopper on the refund. We only find out when we lodge a query,” he said.

Profiles

“Special stoppers” are codes that Sars places on tax profiles that block tax refunds. Thabo Legwila, CEO at the Office of the Tax Ombud, said stoppers were used to delay the payments of refunds in specific circumstances, such as debt equalisation, fraud investigation or outstanding returns.

“The Office of the Tax Ombud conducted a systemic investigation back in 2017, regarding allegations of Sars delays in paying out refunds. Various root causes resulting in the delay in such payments were identified.

“It was found that delays in the lifting of stoppers were among those root causes. We’re still receiving complaints of such delays, affecting the payment of taxpayer refunds,” he said.

The Tax Ombud explained that the 21-day period for finalising verifications was not a legally prescribed timeframe, but one undertaken by Sars as prescribed by its service charter, and was only applicable if the taxpayer was up to date with the filing returns and their returns were verified for that current year.

“When a noncompliant taxpayer submits returns for multiple years, the timeframe applicable is 90 days. Furthermore, those timeframes only start from the day the taxpayer submits information requested by Sars for purposes of verification. In other words, when Sars is still within the timeframe to verify the documents, the Office of the Tax Ombud is unable to intervene,” it said.

Newly appointed deputy commissioner for taxpayer engagement and operations Johnstone Makhubu pointed out that, in the last tax year, Sars had paid out R381 billion in refunds, of which R319 billion were VAT refunds.

Of the 4.3 million returns submitted for refunds, only 10% (or 430 000) had been stopped for an audit. Of those, 75% had been processed within 21 days.

This had left approximately 107 500 returns which were identified for further investigation.

Businesses

While this only represented 2.5% of the total volume of tax refunds, they were concentrated on small businesses.

He said that, last year alone, Sars had stopped R41 billion in fraudulent VAT refunds, most of them from small businesses.

However, he acknowledged that there was a capacity issue at Sars.

“In the national budget, funds were allocated to Sars to employ further skills. We’re trying to get those skills in the market,” he said.

Added to that challenge was an attack on Sars this year by criminal syndicates, which created fake VAT returns. The syndicates’ modus operandi involved purchasing shelf companies with VAT numbers and then submitting tax returns.

The syndicates first tested the risk engine with several VAT returns to see whether they would go through. “Our algorithm picks this up and it generates a suspicious case which needs to be verified. This created additional work for the same number of verifiers,” said Makhubu.

He added that Sars was reviewing its systems and workflow to improve outcomes. For example, it had changed the way its system automatically issued letters. “If there’s a further investigation, letters are automatically sent to the taxpayers, asking for additional documentation, but the letters were generic. Now we’ve updated them so that the requests are more specific,” he explained.

He added that many delays were caused by taxpayers who did not respond on time or had not submitted all the documentation requested. “Many of them are sole proprietors who don’t have an accountant and their recordkeeping isn’t that great,” said Makhubu. He pointed out that bank details which had not been updated were another challenge, with about R2.4 billion of refunds delayed for that reason.-Fin24