Vat compliance remains a key focus area for Sars

The South African Revenue Service (Sars) paid out refunds to the tune of R321 billion in the previous tax year, the highest ever in the 25 years of the tax authority. This represents more than 5% of gross domestic product (GDP).

While attacks on Sars’s refund system remain a huge concern and risk, enforcement efforts prevented the outflow of more than R60 billion in impermissible refunds, Sars Commissioner Edward Kieswetter remarked during the announcement of the 2021/22 revenue results.

Value-added tax (Vat) compliance remains a key focus area for Sars, mainly because this tax type dominates refunds. Vat received the biggest portion of refunds (R262 billion) in the tax year.

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The challenges associated with Vat compliance were addressed during a recent webinar hosted by the South African Institute of Taxation (Sait). Beatrie Gouws, head of stakeholder management at Sait, said that once a taxpayer has been selected for a Vat audit it is “time to phone a friend”.

The Vat slopes are slippery and require specialist knowledge, she said.

Administratively intense

“Vat especially, is administratively intensive and there are a lot of moving parts. Therefore your level of proactiveness needs to be quite significant,” said Gouws. “There are many risk areas that you have to be aware of.”

One of the moving parts is to ensure that the business complies with the requirements of their registration category and to submit their returns according to the tax period allocated to them.

These periods range from monthly to every two, six or 12 calendar months. Deon le Roux, associate director at Vat IT, said Sars can automatically change the period if the taxpayer falls into a new category.

A business that submitted every two months may be required to file monthly Vat returns when there is a change. If the return is not filed, it will be flagged as outstanding and penalties and interest may apply.

Claudia Steyn, Vat IT’s tax compliance manager, noted that taxpayers are not always officially notified of the change. That is why it is important to monitor the statement of account to pick up changes.

Submit and pay on time

Even if there is no liability due or if there is a nil return the taxpayer still has to submit the return by the due date. During the Covid period companies that closed or were dormant for a few months thought they did not have to submit Vat returns.

However, Le Roux warned that if a return was not submitted Sars has the right to issue an estimate assessment.

It uses the previous year’s figures, does an estimate of the turnover, and issues an assessment. “The taxpayer then has to prove that it is not the correct figure that was used.”

Making late payments can also result in penalties being levied and interest accumulating even if the taxpayer made the payment on the due day but missed the bank’s processing cut-off time or if the taxpayer exceeded their payment limit for the day.

“It will take time to sort out,” said Le Roux. “This may result in your request for suspension of payment not being accepted. The dispute resolution process of objection and perhaps appeal can run into many months after the event. This will affect your cash flow and your tax clearance certificate.”

Interrogate the numbers

Gouws also referred to Sars allocating returns for “consistency checks”. When there are significant variations in the numbers presented to Sars, taxpayers and their practitioners need to pre-empt the revenue service’s questions and have the answers ready.

A while back Sait received several complaints from tax practitioners when Vat returns were held ‘in stasis’.

“We understood that the number of returns that were pushed towards ‘consistency checks’ and the number of people who were able to do the work were not necessarily commensurate with each other,” said Gouws, adding that the backlog has since been resolved quite significantly.

There has again been an increase in the number of returns allocated for checks, but the time it takes for these checks to go through the system has shortened substantially, said Yolisa Dyasi, Sait’s technical consultant. It appears that Sars has increased its capacity to deal with the flagged returns, she added.