Many South African businesses who are on the receiving end of delayed VAT refunds from the Taxman, may be unaware that there are instances where they are entitled to interest on overdue refunds. 

The South African Revenue Service (SARS) understandably takes its time to thoroughly vet VAT claims to prevent fraud, but it does not mean South African businesses must sit back and patiently await their refunds, with no rights, in cases of significant delays. The court case of Top Watch (Pty) Ltd v Commissioner for SARS highlighted that SARS’s authority to delay a refund is limited to the refund itself. The case clarified that unrelated audits in respect of other periods/tax types should not be used as a reason to withhold a VAT refund.

Both the VAT Act and the Tax Administration Act (TAA) provide protection for taxpayers facing prolonged delays. In some cases, it even allows for interest on these overdue refunds.

Tax Ombud confirms interest is due

In a recent case, the Office of the Tax Ombud (OTO), who deals with taxpayers’ complaints against SARS, secured thousands of rands in interest to a business waiting on a VAT refund. After the Ombud investigated the case and made its recommendation, SARS paid a refund of R4.25 million in September last year ­ - four months after the initial VAT return was submitted­ ­– as well as interest of more than R135,000 the following month. 

The Ombud explained that if a VAT refund is not paid out within 21 business days, SARS is obliged to pay interest at a prescribed rate on the amount refundable. However, certain circumstances will delay the accrual of interest. This, for instance, is where a taxpayer submitted a defective or incomplete return, where SARS requested information from the taxpayers about the return in question, or where a taxpayer did not provide SARS with confirmed banking details, the OTO said in a statement. 

The OTO said the 21 business days will only start counting on the date on which the taxpayer provides SARS with the correct return, information or banking details.

SARS's Justifications and Taxpayer Rights

According to the TAA, SARS’ failure to pay the refund for the tax period within a reasonable time may be justified, as SARS need not authorize the refund. This process can involve audits or inspections, but SARS must complete its review process within 21 business days. Should SARS require additional time to finalize an audit/verification, both the TAA and the SARS Service Charter requires the Revenue Service to provide reasons to a taxpayer for its delay in resolving the matter. SARS must also keep taxpayers informed of the progress of the audit/verification refund's status.

Enforcing Your Rights

A practical example of a successful application in terms of section 45 of the VAT Act, is highlighted below:

If you as a taxpayer find yourself in this predicament, both the VAT Act and TAA offer legal avenues to ensure that SARS is held accountable, even for paying interest where justified. But it can be a complex legal process, particularly when dealing with lengthy verification periods and large sums of money. A qualified tax attorney can guide you through the legal process, ensuring SARS remains accountable for any administrative delays.

Written by Colleen Kaufmann, Senior Tax Attorney at Tax Consulting SA