By Willem Oberholzer, Executive Director at Probity Advisory
To get a value-added tax (VAT )refund from the South African Revenue Service (Sars), any registered vendor will have to jump through an array of red-taped hoops to get the funds released, and in many cases, these refunds are sorely needed.
VAT, at its very heart, is a system of self-assessment. A VAT Vendor (someone who continuously and regularly supplies a product or service in South Africa) is charged by law to register for VAT (if your turnover is more than R 1 million) and compelled to charge the sales tax of 15% charge VAT on every supply made for goods or services.
These VAT charges and collections are then payable to Sars. The Vendor is allowed to subtract VAT paid to other vendors, enabling it to render the service or the goods.
This net amount of VAT (received from clients less VAT paid to suppliers) is electronically declared paid over to Sars every second month.
If you have all your supporting documents in order, and you were allowed to claim it all back, then Sars has to refund you in terms of Section 44 of the VAT Act. VAT refunds and the interest payable by Sars are dealt with within various sections of the Act.
A refund means that a VAT vendor has paid more VAT to its suppliers than it received from its clients. And it's ordinary in business that they are in a refund position in some VAT periods.
For example, vendor A sells goods to Vendor B for R1000, Vendor A will pay over R150 input VAT to Sars, and Vendor B can Claim R150 from its output VAT. If Sars were to hold back the reimbursement to B of R150, Sars would have R150; that is not their money, but that of Vendor B.
To put that in context, if the retail sector has annual sales of R516 billion, the VAT on those sales will amount to R77.4 billion.
If 10% of the VAT is withheld for a while (say a year), it means that someone benefits from R7.74 billion per annum and that someone is NOT the consumer, as the consumer already paid the VAT.
Costing and the pricing of debt and borrowings will necessitate that items are sold for more because of the increased finance cost to "bridge" the period that VAT refunds are unduly withheld.
Yet again, it will hit the consumers, wealthy or poor alike … why?
Because consumers pay VAT on the cost of their consumables. I am sure a cash flow boost or a non-interest-bearing loan of R7.7 billion is welcome, don't you?
There are currently many vendors from whom VAT is being withheld, some are my clients, and I have tried to find out why, but the taxman is not very forthcoming with answers. Sure, you can make an appointment at a branch office to talk to a Sars official, but the standard answer seems to be that the matter is either in progress or yet to be allocated to a Sars official or needs to be escalated. I shudder to think how long the escalation line is because you hardly ever get any reply after that. So then, what are you to do?
I would venture that maybe, just maybe, if the end justifies the means, taxpayers (VAT vendors) without outstanding "Tax blood" on their hands and up-to-date returns should pursue the legal route, i.e. appoint a lawyer to take legal action against Sars, but that is not as simple as it sounds.
It is a costly and drawn-out process.
Indeed, if Sars is expecting taxpayers to be compliant in filing their tax returns, and pay their taxes on time, then Sars has to lead by example.
Or, are we seeing a case of "just do as your told or else ". From what we have seen happening of late, it's the latter, not the former.
Listen to the Personal Finance Podcast - Tax Talk Episode with Willem Oberholzer here.
BUSINESS REPORT