Important information for South African businesses about SARS VAT payments

South African taxpayers should carefully review their value-added tax (VAT) statements, as they may find that the South African Revenue Service (SARS) is not paying them the full amount they are owed.

This is because delays in VAT refund processes can carry additional interest, which SARS may not always calculate and pay out automatically with the refund.

Unicus Tax Specialists SA founder Nico Theron explained that SARS frequently checks their VAT refunds for verification purposes, which can result in delays in the taxpayer receiving the refunded amounts.

Under the Value-Added Tax Act, these delays are subject to interest if not processed within the prescribed 21-business-day timeframe.

“Many taxpayers believe the issue is resolved once the refund is finally released,” Theron said. “That is not necessarily the case. A delayed refund should always prompt a follow-up question: Did SARS also pay the interest due?”

In almost all instances, SARS may be liable to pay out this interest to taxpayers who have faced delays in their refund processes, with a few notable exceptions.

These exceptions range from defective and incomplete VAT returns to issues with banking details, as well as instances where SARS is unable to verify the refund.

Theron said many taxpayers are solely concerned with the release of their delayed refund, and as a result, will often overlook the potential for additional amounts.

He said this has raised wider questions around exactly how many South African taxpayers are even aware that there may be interest owed to them by SARS.

He urged VAT-registered companies and individuals to review their statements of account after delayed refunds have been issued.

“They should confirm whether interest has been calculated, whether the correct period has been applied, and whether SARS has relied on any statutory exception to reduce or avoid paying interest,” Theron advised.

“Interest on delayed VAT refunds is not discretionary. Where the legal requirements are met, it forms part of the taxpayer’s entitlement. But that entitlement must be understood and, where necessary, forced.”

Recent cases of VAT refund interest

Theron pointed to a recent case involving one of Unicus’s clients in which a substantial amount of interest was recovered on a delayed VAT refund.

In this instance, SARS reversed the client’s initial input tax claim, which effectively cancelled the taxpayer’s entire VAT refund.

The refund was reinstated after Unicus successfully challenged SARS on behalf of the client, but the interest incurred by the delay was not reflected.

Unicus pursued the issue by lodging a complaint with the SARS Complaints Management Office and even escalated the matter to the Office of the Tax Ombud (OTO).

After initiating further legal proceedings, SARS paid out the interest to the client several months later to the tune of over R2.8 million.

“If the taxpayer had not queried the omission, requested the calculation, and challenged SARS’ position, a substantial amount of statutory interest may never have been paid,” Theron said.

Another case occurred in 2023, after a claimant filed for a VAT refund of almost R5.4 million, which SARS then selected for verification.

After SARS failed to finalise the verification within the 21-business-day period, the taxpayer lodged a complaint with the SARS Complaints Management Office.

SARS requested additional documentation from the claimant, but after this was submitted, it still did not complete the verification process within 21 business days.

The taxpayer then approached the OTO, which recommended that SARS finalise the verification of the VAT declaration and pay the refund, including any accrued interest.

Almost six months after the refund was initially filed, SARS reduced the refund amount to R4.2 million and paid it, along with an additional R135,000 in interest.

Theron said cases such as these should serve as reminders for taxpayers to constantly check their refund statements to ensure they are being paid the full amount they are owed.

“VAT refund delays occur regularly,” Theron said. “The real question is how many taxpayers receive their refunds and never verify whether interest was also paid. In this matter, the interest exceeded 2.8 million. That should serve as a wake-up call.”