Tax Ombud’s report on the investigation into alleged delayed payments of refunds
On 28 August 2017, the Tax Ombud Judge Bernard Ngoepe (“the TO”) released its report on investigation into alleged delayed refund payments from SARS to taxpayers.
The Office of the Tax Ombud was established in terms of sections 14 and 15 of the Tax Administration Act, 28 of 2011 (”the Act”). The TO was appointed and became operational with effect from October 2013, but was only officially launched by the Minister of Finance in April 2014.
The mandate of the TO, according to Section 16(1) of the Act, is to:
- Review and address complaints by taxpayers regarding service, procedural or administrative matters arising from the application of the provisions of Tax legislation by the South African Revenue Service (SARS); and
- Review, at the request of the Minister or at the initiative of the TO with approval of the Minister, any systemic and emerging issues related to service matters or the application of the provisions of the Act or procedural or administrative provisions of Tax legislation.
In a memorandum dated 9 March 2017 the TO, acting in terms of section 16(1)(b) of the Act, requested that the Minister grant approval for a review of several complaints by taxpayers that SARS was unduly delaying the payment of refunds due to them. The aforesaid request by the TO was approved by the Deputy Minister of Finance on 14 March 2017.
According to reports, the TO received no less than 500 complaints during the period November 2016 to March 2017, half of which were validated. The complaints by taxpayers was that SARS employed certain mechanisms to unduly delay, or even avoid, paying out refunds to them. This resulted in financial hardships to them and, in some instances, the near collapse of their business.
In its Annual Reports to Parliament in 2015 and 2016, delayed payment of refunds due to taxpayers was the second largest category of complaints received by the TO for the aforementioned periods.
In its report to Parliament dated 28 August 2017, the TO identified the obstacles which ostensibly caused the delayed payments complained of by taxpayers and referred to in its 2015 and 2016 reports. According to the TO the delays were caused by the following factors:
- Failure to link submitted documentation requested by SARS to the main file
Complaint: When a taxpayer attends a SARS office to submit the documentation requested by SARS, the office fails to link the query with the uploaded documentation.
Recommendation by the TO: When the requested documents are uploaded at SARS’s office, they should be linked to the query.
- The unwarranted placing of Special Stoppers
Complaint: “Special Stoppers” are placed on taxpayers’ accounts in order to stop refunds from being paid out. In most of these instances taxpayers are required to verify bank details in person at a SARS branch. Whilst there was understanding from the TO for the reasoning behind this requirement - to prevent payment of undue refunds and fraud, there was still an unreasonable delay in payment subsequent to the taxpayer’s banking details having been verified, or a taxpayer having complied with SARS’ requirements.
Recommendation by the TO: Banking details provided by the taxpayer must be duly recorded and verified timeously to avoid the delay in the payment of refunds.
- Using the filing of new returns as excuse to block refunds
Complaint: The placing of a “stopper” every time a new return for the next period is filed. The system blocks already verified refunds the moment a subsequent return is submitted by the taxpayer.
Recommendation by the TO: SARS needs to ensure that the remedy it has put in place to solve a problem is effective because, notwithstanding the remedies in place, complaints seem to be persisting.
- Delay in lifting of stoppers and lack of time frame for doing so
Complaint: The lifting of “special stoppers” takes unreasonably long.
Recommendation by the TO: The “stoppers” must be removed as soon as possible once the cause thereof has been resolved. The TO notes SARS’ willingness to comply, but this should not take 21 days. Moreover, there should be a time frame for the removal (less than 21 days) once the matter is resolved. Taxpayers cannot be expected to be patient to no end.
- 5. Refunds for one period being withheld while and audit/verification is in progress on another period
Complaint: SARS refuses to release refunds that have been verified for a specific tax period until such time as all audits/verifications pending on other tax periods have been finalised. The aforesaid practice is in contravention of section 190 of the Act.
Recommendation by the TO: The provisions of the Act must be adhered to.
- SARS using historic returns to delay payment of refunds
Complaint: Returns that have never been shown as outstanding on Tax Clearance Certificates or Statements of Account suddenly reflect as outstanding and is then used as an excuse for not paying refunds. This is done notwithstanding the fact that previous refunds were released.
Recommendation by the TO: The use of historic returns to delay the payment of verified refunds is unacceptable and should cease.
- SARS raises assessments and pass journals to clear unallocated credits
Compliant: SARS raises assessments to absorb credits on taxpayers’ accounts where for example overpayments are made. In doing so, SARS creates fictitious tax liabilities, instead of taking a decision on refunds. Failure to take such a decision is subject to objection and appeal, but SARS avoids such appeals by raising assessments. By raising an assessment in such circumstances SARS effectively takes the dispute resolution procedure in another direction - away from paying the refund.
Recommendation by the TO: The TO is of the opinion that this practice should cease altogether.
- Requesting further information during audit
Complaint: SARS auditors keep audits pending while repeatedly requesting information from taxpayers. Apart from delaying the refund, the incidental consequence is that if successive requests for further information are sent out - each within 21 days of the other - interest will commence accruing on the refund.
Recommendation by the TO: Where an auditor failed to request all documentation at once, and the refund is consequently delayed, SARS should pay interest on the delayed refund.
- Assessments successfully disputed, but refunds still not paid out
Complaint: Where assessments are successfully disputed and the initial refund is reinstated, taxpayers experience a delay in the revision of the assessments and the payment of the refund. The frustration experienced is is the lack of a turn-around time.
Comment by the TO: The undertaking by SARS to take steps to address the situation is welcome and supported.
- Obstacles regarding diesel refunds delays
Complaint: In the case of VAT returns, VAT and Diesel refunds are declared on the same return which then provides a nett amount payable by or refundable to the taxpayer. In the case of Tax returns, however, they are reflected on two different systems which results in manual set offs having to be done to obtain the same nett result as reflected on the return. Where there is a delay in this process, a delay is caused in the set off refunds. Furthermore, where the diesel portion is being verified/audited the VAT portion shows as a liability and SARS takes collection steps even though the taxpayer complied with the nett result show on the return.
Comment by the TO: SARS’ undertaking to address the problem is noted.
- The raising of assessments prematurely
Complaint: Taxpayers are afforded 21 days to submit supporting documents but assessments are raised prior to the lapse of this deadline.
Comment by the TO: Taxpayers needs to be educated and encouraged to furnish all the required documents or information at once.
- Refunds for periods that have been verified by SARS are automatically set-off against debts on other periods notwithstanding suspension of payments or requests for suspensions.
Complaint: Section 164(6) of the Act stipulates that SARS may not institute any collection steps from the date of submission of a request for suspension of payment, prior to the lapse of 10 days after a decision to not grant the request has been communicated to the taxpayer. Despite the aforesaid provision, SARS’ system does not cater for instances where a taxpayer has requested the suspension of payment pending the finalisation of an objection or appeal. The system automatically sets already confirmed refunds off against such debts even if SARS has not responded to, or granted, such a request.
Recommendation by the TO: SARS’ systems must be updated to ensure that they comply with the provisions of the Act. Whenever legislation changes, any automated actions performed must be changed to comply with legislation.
The TO found that it is clear that the system allows for SARS to unduly delay the payment of verified refunds to taxpayers under certain circumstance and therefore do not sufficiently protect taxpayers. It was recommended to SARS, which recommendation SARS acknowledged, that the removal of the obstacles discussed in the Report, as well as many others, would go a long way towards addressing the problem.
Tax and Tax Law are ever changing and can cause for turbulent waters, especially for emerging businesses. It is therefore advisable that businesses and business owners ensure that they are informed of changes in Tax practice and legislation and that they receive not only correct advise, but also proper assistance when having to deal with Tax disputes.
Gerhard Linde, master tax practitioner 10 October 2017.
- Tax Ombud. (2017). TAX OMBUD’S REPORT ON THE INVESTIGATION IN TERMS OF SECTION 16(1)(b) OF THE TAX ADMINISTRATION ACT 28 OF 2011 INTO ALLEGED DELAYED PAYMENT OF REFUNDS AS A SYSTEMIC AND EMERGING ISSUE. [online] Available at: http://www.taxombud.gov.za/Documents/TAX OMBUD’S FINAL REPORT ON COMPLAINTS AGAINST SARS RELATING TO ALLEGED UNDUE DELAY IN THE PAYMENT OF REFUNDS.pdf [Accessed 16 Nov. 2017].
Barnard Inc is an attorneys firm in Centurion, Pretoria.