The investigation by the Office of the Tax Ombud into the delay of refunds from the tax authority has borne fruit.
Finance minister Tito Mboweni announced in his maiden medium-term budget policy statement that R20 billion in value-added tax (Vat) refunds will be paid to taxpayers.
The additional refunds comprise R11 billion to clear the backlog (refunds withheld) and another R9 billion to provide for the current fiscal year (2018/19).
“We recognise that this has hurt the cash flow of a number of companies, including small businesses,” he said in Parliament.
The Ombud found in a scathing report that the South African Revenue Service (Sars) has, in some instances, been unduly delaying the payment of valid refunds, causing financial hardship.
Despite this report, the number of complaints about the non-payment of refunds still tops the list of complaints received by the Office of the Tax Ombud. It has received more than 800 complaints, representing almost 35% of all complaints.
Another issue that has been causing grave concern is the time it takes to solve disputes with the tax authority.
The Ombud has recently received approval from the finance minister to investigate the reasons for Sars’s non-compliance with time frames set out in the Tax Administration Act.
In the 2017/18 Tax Ombud Annual Report, complaints about non-compliance with dispute resolution time frames rank second highest, with 700 complaints accepted for investigation. This represents almost 30% of all the complaints received.
Taxpayers who have been battling with Sars on delays in the dispute process can now directly approach the Office of the Tax Ombud to act on their behalf against the tax authority.
When complaints by taxpayers are recognised by the Tax Ombud as being systemic, taxpayers no longer have to exhaust all avenues before approaching the Ombud for assistance.
Joon Chong, tax partner at law firm Webber Wentzel, says the dispute resolution process has also become quite unfair, mainly because of the time and money it takes to finalise a dispute.
She says taxpayers who want to dispute their assessments have to object and file it within 30 days of receiving the assessment, or apply for an extension of 30 more days if they have reasonable grounds.
Once the objection has been received by Sars, it has 60 days to notify the taxpayer whether the objection is allowed or not.
“That is where the problem comes in. Sars often does not adhere to this timeline. However, it is very strict with the timelines given to the taxpayer in which they should submit their objection. If the time to submit the objection has expired, the objection would be invalid.”
It is then necessary to show grounds for lateness, which becomes a new set of requirements the taxpayer has to meet, says Chong, a member of the South African Institute of Tax Professionals working groups.
Sars has been quick to notify taxpayers when the objection has been rejected and that way the case is kicked back to the taxpayer.
If there were reasonable grounds for the lateness, Sars can extend the time to object by another 30 days. Taxpayers can also plead ‘exceptional circumstances’ for being late and these objections can still be accepted up to three years from receiving the assessment.
“These exceptional circumstances are difficult to meet and the hurdles to cross are very high,” says Chong.
As soon as the objection has been declared invalid, taxpayers are given 20 days to submit a new objection. Although Sars offers reasons in the notice for the rejection of the initial objection, they are not always comprehensive.
Once the new objection has been filed the process starts afresh with the stated timelines. If the objection is again declared invalid, the taxpayer may take the decision not to grant an extension on appeal.
Usually, at this stage, taxpayers opt for the Alternative Dispute Resolution (ADR) route where a Sars representative and the taxpayer attempt to resolve the matter with a Sars-appointed facilitator.
The outcome of this process can be a settlement between the parties, withdrawal of the appeal, or no settlement and the matter will then proceed to the courts.
Taxpayers are loath to follow the court route given the time and money required. It can take as long as a decade to finalise a matter.
While the dispute drags on, the initial assessment stands and, in terms of the ‘Pay Now, Argue Later’ principle, the tax is due and payable.
However, Sars has been willing to grant a suspension of payment if the taxpayer can show that recovery of the tax is not in jeopardy, that there is no fraud and that the taxpayer is in good standing or that the payment will result in irreparable hardship.
The Office of the Tax Ombud and Webber Wentzel will be holding panel discussions in Johannesburg and Cape Town in November to discuss common issues experienced by taxpayers and possible solutions.