By Annelie Giles
South Africa follows an input-credit method of value-added tax VAT accounting, which allows a VAT-registered vendor to claim VAT on expenses that have been incurred in the course or furtherance of its taxable enterprise. The difficulty is that there is no prescribed time period within which the South African Revenue Service Sars is required to pay out a VAT refund.
While there are many reasons why VAT refunds are not paid out immediately, in practice, certain themes repeatedly emerge as causing the delayed payment of refunds to vendors. Some of these themes are explored in further detail in this article.
Audit or verification of refunds
Section 1902 of the Tax Administration Act No. 28 of 2011 TAA preserves Sars right to first verify a refund before the refund is paid out. Sars will usually inform a vendor at the start of a verification or audit that, if it has a refund due, it will be paid only after the verification or audit is complete and the refund validations are passed. It has long been an issue of contention between Sars and vendors whether Sars may withhold refunds that are not the subject of the particular verification or audit. Recent experience seems to suggest that Sars no longer places general stoppers on vendors VAT profiles, which prevent the payment of any new refund claims while Sars is auditing selected historic refund claims and that the use thereof is reserved for instances where it is justifiably warranted.