In a recent media release, dated 11 May 2023, and focused on VAT Refunds and Registrations, the South African Revenue Service (“SARS”) stated that it is committed to paying legitimate refunds to qualifying taxpayers, as and when they become due. In line with this commitment, SARS reported that during the 2022/23 financial year, a record R381bn in refunds were paid, of which, R319bn were VAT refunds.

This appears to be in line with their strategic objective to make compliance easy, and sometimes seamless for taxpayers.

SARS, further and perhaps more importantly, highlighted that they had noticed a significant spike in suspicious registrations by VAT vendors in April 2023, requiring them to conduct an urgent review of their VAT registration process. 

Walking the Razor’s Edge

It is imperative that the ease of registration be balanced with the risk of abuse and attempts by individuals to obtain a VAT number and claim fraudulent refunds; albeit not an easy task, SARS must walk this razor’s edge with the greatest of finesse.  SARS’ analysis further suggests that large numbers of these registrations are being created with the intent to defraud SARS and, by implication, honest taxpayers and the fiscus. SARS thus have immediately implemented the below:

• All new applications for VAT registration will be subjected to a more stringent verification process which could include, the applicant being required to present themselves, in person, to the branch closest to where the business enterprise is located for validation and accreditation;
• Where applicants are expected to visit a branch, the visit must be pre-booked on the SARS website, by clicking on the “Book an Appointment” icon;
• All supporting documents that are required for registration validation must be submitted at the branch on the day of the appointment; and
• VAT registration will only be affected when SARS has satisfied itself that the application is lawful.

Criminality of Non-Compliance

Commissioner Kieswetter took this opportunity to issue yet another stern warning, threatening to identify and pursue those perpetrators who are involved in fraudulent VAT claims. Taxpayers would be wise to heed this warning, as the Commissioner has, on numerous occasions, indicated that SARS are going after fraudulent taxpayers, with the promise of making non-compliance difficult and costly. We have seen this come to fruition where SARS have already been handing over non-compliant taxpayers to the National Director for Public Prosecutions.

SARS are taking a “no-nonsense” approach in pursuing non-compliant taxpayers and handing them over for prosecution. These matters have gone all the way and we have seen significant successes in criminal convictions for tax crimes and the collection of unpaid taxes through lifestyle audits and targeted collection drives.

With SARS becoming more aggressive, coupled with the shrinking tax contribution base and uptick in prosecutions, we may finally see a shift in tax morality, as crime literally does not pay.

A “Hail Mary” for taxpayers

Should a taxpayer have committed any tax defaults, the only way to prevent penalties being imposed as well as the risk of serving a prison term, is by way of approaching SARS on a voluntary basis before SARS is aware of any non-compliance on the part of the taxpayer.

The SARS Voluntary Disclosure Programme (“VDP”) is a mechanism that taxpayers are encouraged to follow where there is historic non-compliance unbeknownst to SARS. Voluntariness is one of the requirements as contained in the Tax Administration Act (“TAA”), which regulates the VDP.

Where taxpayers have already attracted the attention of SARS due to non-compliance, by being selected for an audit, or who have already received a final letter of demand, they will unfortunately not be able to participate in the VDP.

It these instances, it is also important to take cognisance of the tax debt relief measures as contained in the TAA, as where a taxpayer does not have legal merits to pursue an objection nor the element of voluntariness as noted for the VDP, but has difficulty in settling their tax debt. In such cases, a Compromise of Tax Debt application is always available to the taxpayer. 

When a taxpayer is granted relief under either the VDP or Compromise, penalties and / or interest may be waived, and the applicant receives amnesty from criminal prosecution.

First-mover advantage

It is thus of utmost importance that taxpayers who have become aware of any non-disclosure or any tax defaults to come forward and apply for relief through the VDP, or Compromise, where eligible. These mechanisms provide a limited window of opportunity to become fully compliant and before SARS comes knocking.

Whilst remedial process is underway, as a rule of thumb, all correspondence received from SARS should be immediately addressed by a qualified tax specialist or tax attorney. This will ensure taxpayers are advised correctly on the most appropriate solution to ensure optimal tax compliance, within the designated timeframes.

Written by Andre Daniels, Legal Manager: Tax Controversy and Dispute Resolution at Tax Consulting SA