FINAL SAIT submission on Annexure C issues - VAT€¦ ·...

29 November 2013

Ms N. Nkumanda The National Treasury 240 Vermeulen Street PRETORIA 0001

Ms A. Collins Legal & Policy The South African Revenue Service Lehae La SARS PRETORIA

BY E-‐MAIL: [email protected] / [email protected]

Dear Ms Nkumanda and Ms Collins

RE: ANNEXURE C PROPOSALS

Thank you for the opportunity to contribute proposals for the inclusion in Annexure C for the Budget Review, 2014. Set out below, is the consolidated commentary on the Value-‐Added Tax issues only developed from both an internal review of the provisions as well as from consultations with members, stakeholders and industry. The commentary reflects the collective view of members, stakeholders and industry role players consulted. 1 REFUND WITHHELD WITHOUT ANY VALID REASONS (repeal of s44(8))

Problem statement

Section 44(8) of the Value-‐Added Tax Act (No. 89 of 1991) (hereinafter referred to as the ‘VAT Act’) which gave taxpayers the right to request reasons in writing as to why a refund had been declined was deleted on 1 October 2012. Currently, taxpayers and tax practitioners are struggling to get refunds paid out by SARS and no valid reasons are provided as to why the refunds are withheld which forces them to approach the SSMO after having been unsuccessful in following the normal dispute resolution channels. Neither the VAT Act nor the Tax Administration Act (No. 28 of 2011) (hereinafter referred to as the ‘TAA’) contain any provisions which provide for the period in which SARS is eligible to refund amounts claimed. This leaves taxpayers with no legislative recourse against SARS because there is no obligation placed upon SARS to provide a letter of

findings in terms of section 42 of the TAA if no audit is launched. The taxpayer also has no recourse in terms of the VAT Act with the repeal of section 44(8).

Proposed solution / recommendation

A right of the taxpayer appears to have been withdrawn (with the repeal of section 44(8) of the VAT Act) without any similar right being inserted in the TAA. It is therefore proposed that section 44(8) be re-‐instated as currently refunds are not being paid out, despite being due for multiple years.

2 INTEREST ON DELAYED REFUNDS RESULTING IN A DOUBLE PENALTY (s45(1)) Problem statement

In terms of section 45(1) of the VAT Act, the Commissioner is required to pay interest on a VAT refund if the refund isn’t made within 21 business days after the date on which the vendor’s return in respect of a tax period is received by SARS. However, s45(1)(iA) states that:

“where the vendor is in default in respect of any of his obligations under this Act or any other Act administered by the Commissioner, to furnish a return as required by such Act, the said period of 21 business days shall be reckoned from the date on which any such outstanding return or returns furnished by the vendor as required by such Act are received by an office of the South African Revenue Service.” Thus SARS is not obliged to pay interest on these refunds if the taxpayer has other tax returns outstanding. SARS is invoking this provision and not paying interest on VAT refunds for taxpayers that have outstanding returns for other taxes. There are already administrative penalties for the taxpayer in terms of the TAA for not having submitted these returns. Refraining from paying a refund to taxpayers with returns in arrears results in a double “penalty” for the taxpayer.


Until the compounded interest provision is enacted in the TAA, it is proposed that the treatment of this double penalty be harmonised in order to prevent this unfair burden on the taxpayer.

3 PROCEDURAL DIFFICULTY IN OBTAINING REFUNDS AND INTEREST ON REFUNDS FROM SARS (s45)

Problem statement

Currently, taxpayers requiring interest on VAT refunds to be paid to them have to submit a formal letter to SARS requesting this interest. Should income tax (provisional tax) be overpaid, interest is paid by SARS to the taxpayer (automatically) without any formal request for this payment. This difference in treatment is unclear especially in light of section 45(1) states that the Commissioner is required to pay interest on a VAT refund if

the refund isn’t made within 21 business days after the date on which the vendor’s return in respect of a tax period is received by SARS.

The letter requesting the payment of interest on the VAT refund by the taxpayer (submitted to the general SARS email address) is not the last administrative hurdle that the taxpayer has to go through. The taxpayer has to generally still follow up a couple of times on this letter and then ultimately refer the matter to the SSMO in order to receive the refund.


It is proposed that the treatment of interest on VAT refunds should be treated the same as income tax, i.e. No letter needs be submitted to request the interest as the payment of this interest is automatically due in terms of the legislation. Alternatively, SARS should provide the taxpayer with an acknowledgement of receipt of these letters or to give a number like the call centre gives which would allow the taxpayer to follow up on the request and which would also give the taxpayer an audit trail when the matter is referred to the SSMO.

A further proposal is for SARS to provide some sort of relief for this outstanding refund due to the taxpayer as particularly small businesses are dependent on the refund for cash flow purposes. A possible way in which SARS could do this is to, at the request of the taxpayer, offset the refund due to it against future VAT liabilities.

4 BANKING ACCOUNT VERIFICATION BEFORE REFUND IS PAID OUT (s 45(1)(iiA)) Problem statement

With the VAT registration process a vendor is required to submit various documents, including banking details with original bank stamps etc. Then with the first refund (which generally occurs in the first few months of a small business’s operations) or any subsequent refund, SARS withholds the refund until the vendor verifies its banking details. No information on the VAT 101 is accepted as valid by SARS for this purpose. We understand that for vendors that have been registered for years, the request to verify banking details before the refund is made, makes some sense, however, the resubmission of the banking account details, just after the vendor has registered appears to be an unnecessary administrative burden for the vendor. With regard to the vendor that has been registered for years and now requests a refund, an argument can also be made that because the vendor has been paying VAT on a monthly basis from the same bank account up until the refund, surely this should be sufficient proof that the vendor has a valid bank account and it is a legitimate account because should any changes have occurred, the vendor is, in terms of section 25 of the VAT Act, required to notify SARS of this change.

It also appears that the reason for having to provide the VAT refund division of SARS with this information is, according to certain SARS officials, because the taxpayer has provided the registration unit of SARS with the updated banking details but not the rest of SARS. Surely this is unreasonable as SARS is one entity.

A further concern is that no interest is paid on the refund until all the documents from the bank have been submitted as discussed above. This non-‐payment is in terms of section 45 of the VAT Act read with section 44(3)(d) of the VAT Act:

“The Commissioner shall not make a refund under Chapter 13 of the TAA unless-‐

(d) the vendor has furnished the Commissioner in writing with particulars of the enterprise’s banking account or account with a similar institution to enable he Commissioner to transfer a refund or other amount due to the vendor to such account…”

The concern with this process is that the verification of the bank account details happens after the refund is due which prolongs the period from when interest will be calculated.


Notwithstanding that the taxpayer has a legal responsibility to notify SARS of any change in banking particulars, to prevent the lengthy time periods involved in updating bank account details with SARS after a refund is due, SARS should request taxpayers to update/verify their bank details once every year (or at least every two years). This annual verification would enable taxpayers (especially small businesses) to be proactive and to manage their cash flows by reducing the time period required to obtain a refund and interest thereon.

5 DIFFERENT SUBMISSION AND PAYMENT DATES (s28 & 39) Problem statement

The method (i.e. SARS’ e-‐filing or otherwise) of submitting returns and paying the VAT has the effect of different due dates for submission of a VAT return (ie. 25th or last business day of the month) and the payment of such tax. This differentiation could be regarded as being discriminatory. The reason for this is due to the fact that if a vendor is required to submit on the 25th of the month, but submits the return one day late, the vendor would be subject to penalties, whilst another vendor submitting on the last business day, may at that time not even have submitted a return as yet and thus not be subject to a penalty merely because of the manner in which the return was submitted.


It is proposed that the differentiation between the 25th of the month and the last business day be repealed.

6 REQUIREMENTS FOR OBTAINING A VAT RULING (s79(4)(n)&(o) of the TAA)

Problem statement

Section 79(4)(n) and (o) require that a taxpayer must provide a statement that it has complied with any registration requirements under a tax Act and that all returns in respect of all other taxes are up to date before SARS will provide a ruling. In practice SARS requests a statement from the taxpayer that it is registered for all taxes and that there are no taxes outstanding. In some instances rulings were rejected due to internal problems within SARS (such as random SARS errors). Some rulings are urgent and in many instances it is critical to obtain a ruling as reliance on an opinion provided by a tax practitioner is not always sufficient to provide the certainty that the taxpayers require. In various instances, the ruling committee was provided with tax clearance certificates (less than a month old) as proof that the taxpayer was up to date with all its tax obligations but these certificates were rejected.


Tax clearance certificates should, for ruling purposes, be allowed as evidence that the taxpayer is tax compliant. Alternatively SARS should issue a guideline explaining under what circumstances tax clearance certificates will be accepted for the ruling process.

7 CLARITY NEEDS TO BE PROVIDED ON s 11(2)(l) OF THE VAT ACT:

Problem statement

Section 11(2)(l) has given rise to multiple rulings especially when it comes to telecommunication services. Currently there are a lot of grey areas in this section as to whether or not a service may be zero-‐rated.


The VAT treatment of cross-‐border transactions is admittedly really complicated and it is therefore recommended that separate rules for telecoms and internet providers be introduced due to their unique differences and in light of the various concessions that have been made for these services.

Alternatively, we suggest that the National Treasury organises workshops to consult with tax practitioners on cross-‐border transactions and how the VAT treatment is supposed to work and whether the law actually supports this treatment. This workshop should highlight what Treasury wishes to achieve, what it wants to tax and what it doesn’t want to tax. Practical examples should be discussed to ensure the application of the

law is correctly dealt with. The SAIT VAT Committee members, would be more than willing to provide examples for inclusion in the workshop. An interpretation note would also be useful.

8 UNCERTAINTY AS TO THE “ENTERPRISE” DEFINITION IN THE EXPANSION OF s 12(k)

Problem statement

There are a number of cases specifically in the automotive industry where a manufacturer of parts is located in South Africa, with an offshore holding company. The holding company purchases these parts from the South African company and directly on-‐sells it to a foreign customer. The holding company takes delivery of the parts in South Africa after it has been cleared by customs, so typically when it is delivered on the ship (Free Alongside Ship (FAS)). So the local manufacturer delivered it on the ship, the non-‐resident parent took title of the parts on the ship and then it on-‐sells it. So this could typically be regarded as “flash title back-‐to-‐back sale”.

The concern that arises relates to the “enterprise” definition -‐ there is a good argument that an enterprise is carried on, due to the activities being in South Africa (being the purchase and sale of goods). Although once you’re an enterprise, there would be no VAT consequences due to the zero-‐rating of all the sales to and by that holding company.

The problem is that on numerous occasions, rulings need to be obtained from SARS in order to exempt these entities from registration. The question is whether these flash title sales are sufficient to indicate that an enterprise is in fact carried on in South Africa?


Either an exemption must be created for these enterprises or Treasury must provide clarity through an interpretation note as to what the position is in South Africa. An alternative recommendation could be that section 8 be amended to include a provision which provides that to the extent to which a non-‐resident enters into “flash title back-‐to-‐back sale agreements, such activities will be deemed to be carried on otherwise than in the course or furtherance of an enterprise.

Clarity is also needed on when a person will be carrying on an enterprise in South Africa if the activities are only carried on for a small period of time (less than ? months).

9 APPLICATION OF s 23(4)(a) OF THE VAT ACT

Problem statement

Section 23(4)(a) of the VAT Act states that where a person applies to voluntary registration as a VAT vendor the Commissioner will determine a date from which the person is a vendor. It appears as if in practice, this date is often a date that is earlier than the date on which the vendor is notified of its registration as a VAT vendor (for example, a person applied for voluntary registration in August, but is only notified in November that it is a VAT vendor from August).

This causes uncertainty as the person made certain supplies during the period between the retrospective commencement of being a registered as a VAT vendor and being notified that it is registered as such. Strictly speaking, the person should have charged VAT on its supplies as it was a VAT vendor in that period. At the time of making the supply, the person was however not aware that it would be a VAT vendor. It is unclear how section 20(1) and section 64 should be applied in such a case and reflected in the VAT returns for the periods before notification of being registered as a VAT vendor (in other words, did the person make taxable supplies that should have been subject to VAT or was the person not required to charge VAT on the supplies yet despite being registered as a VAT vendor from an earlier date).


This problem can be overcome by amending section 23(4)(a) as follows:

“Where any person has—

(a) applied for registration in accordance with Chapter 3 of the Tax Administration Act or subsection (2) or (3) and the Commissioner is satisfied that that person is eligible to be registered in terms of this Act, that person shall be a vendor for the purposes of this Act with effect from such date as the Commissioner may determine: provided that such date cannot be earlier than the date of notification to that person of registration as a VAT vendor ...”

The date of notification (or similar term) may have to be defined.

Yours sincerely, Prof Sharon Smulders

Chief Executive Head: Tax Technical Policy & Research

Acknowledgements for inputs (listed alphabetically): Gerhard Badenhorst, Redge De Swardt, Chris Esterhuizen, Job Kabochi, Andre Meyburgh, Dorwin Nyaga, Severus Smuts, Victor Terblanche, Cliff Watson

FINAL SAIT submission on Annexure C issues - VAT€¦ ·...

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