Tax Ombudsman must investigate VAT refunds
27 February 2017
On 7 February 2017, the DA wrote to the Minister of Finance, Pravin Gordhan, to request that he use the authority given to him in Section 16 (1) (b) of the Tax Administration Act, to request that the Tax Ombudsman, Judge Bernard Ngoepe, conduct an investigation into the legitimacy of the numerous claims that SARS deliberately act to delay the refunds of Value Added Tax (VAT).
Under the leadership of SARS Commissioner, Tom Moyane, a climate of low morale, divisions and weak management has developed, that is impeding the collection of revenue.
Thus, an investigation by the Tax Ombud must probe whether or not:
- There are systemic failures with regards to SARS refunds of tax/VAT;
- There are grounds to conclude that SARS are deliberately delaying the payment of tax/VAT refunds;
- There are sections of legislation that SARS may be using to legally delay the payment of refunds;
- SARS may be using other methods to delay the payment of tax/VAT refunds.
There has been a failure by the Commissioner and senior management to ensure that technology systems and skills are updated and developed.
Revenue from VAT projected for 2016/17 amounts to R 290.0 billion and accounts for 25.3 % of the total revenue projection of R 1.14 trillion. This revenue source is second only to Personal Income Tax (PIT) that is projected to bring in R 425.8 billion.
Finance Minister, Privan Gordhan, has already hinted and the Davis Tax Commission has strongly indicated, that the next source for additional revenue will or must be Value Added Tax (VAT). Minister Gordhan has reinforced this by indicating the possible removal of the ZERO rating from fuel sales.
All efforts by SARS must be to ensure the efficiency and credibility of the VAT system. Therefore the information that there is currently a backlog in the region of R 5 billion of VAT refunds is a clear indication of the weak administration and technology at SARS.
The SARS VAT system also handles the Diesel refunds of which there is, like with VAT refunds, a massive backlog of refunds apparently amounting to R 1 billion. The delays of the diesel refunds has a devastating impact on business, mining and agriculture in particular. We understand that the processing of diesel refunds has to all intents and purposes ground to a halt.
SARS systems simply do not have the capacity to deal with refunds within the required time limits. Requests have been made to the SARS Digital Technology Management Committee (DTMC) to authorise system upgrades but the committee has shown little concern for the technological needs and technical expertise.
The DTMC’s tendency to delay its consideration of proposals has resulted in the backlog of VAT and diesel refunds growing bigger.
The delays with VAT and diesel refunds depresses the creation of new jobs and negatively impacts small businesses which often rely on timeous refunds to keep their cash flow positive. What this does achieve is that tax revenue is artificially reflected as being higher than it really is.
The DA will again write to Minister Gordhan to establish whether or not he has indeed agreed to our request and if not, urging him to do so without delay, to ensure that solutions are put in place that will ensure that tax/VAT refunds are paid out promptly by SARS.
Issued by Alf Lees, DA Shadow Deputy Minister of Finance, 27 February 2017
