SARS owes taxpayers money

In certain cases, including delayed VAT refunds, overpaid provisional tax and successful disputes, SARS is legally required to pay interest to taxpayers – although many South Africans never realise they are entitled to claim it.

Many taxpayers are well aware that they will be charged interest by SARS if they pay their taxes late or get in trouble with the revenue service.

Since SARS also has access to taxpayers’ financial information from multiple sources before they even submit anything, making it impossible to hide what they owe.

However, few know that the obligation can run the other way as well. This is according to Latita Africa’s Director of Global Strategy, Roxanna Naidoo.

“In certain circumstances, SARS owes interest to the taxpayer, not as a courtesy or at its discretion,” Naidoo explained.

This is a legal obligation, and most taxpayers never claim it, not because the entitlement does not exist, but because no one told them it does. For taxpayers, the unfairness does not end there.

“If you pay SARS late, interest kicks in immediately and automatically. No notice required. The clock starts the moment you fall behind.”

“But the same does not apply when SARS owes you. The law does contain provisions that would require SARS to pay interest on refunds, but for most taxes, those provisions have never been formally brought into effect.”

Naidoo stressed that this gap favours SARS, not the taxpayer. If the taxpayer is late, interest is automatically charged against them.

“If SARS is late, interest does not run in your favour unless a specific law says it must. Your obligation is broad and automatic. SARS’s is narrow, conditional, and depends entirely on which tax type is involved.”

When SARS is legally required to pay interest

Naidoo explained that there are four main situations where SARS owes taxpayers interest. In these cases, the law is clear, and the entitlement is real.

Firstly, if the taxpayer paid a tax debt that was subsequently successfully disputed with SARS, they are entitled to a refund of the amount paid, plus interest.

The interest runs from the day SARS received the payment to the day it repays the taxpayer. Many taxpayers receive refunds without checking whether interest is included. Always check.

For VAT vendors, Naidoo said SARS has a clear deadline of 21 business days to pay over a VAT refund. If they miss that deadline, SARS owes them interest in addition to the refund.

“SARS can pause that clock if your paperwork was incomplete, your banking details were wrong, you had outstanding returns, or they were conducting a verification or audit.”

If SARS uses one of those reasons to withhold interest, Naidoo urged taxpayers to enquire whether it applies to their case.

“For provisional taxpayers, provisional tax is an upfront payment based on an estimate, and if you paid too much, SARS may owe you interest on the difference. This should appear automatically on your tax assessment.”

“If it is missing or calculated incorrectly, you have the right to challenge it. And lastly, if your business deals with mining or petroleum royalties, a specific legal provision entitles you to interest on delayed refunds.”

This applies to assessments from 1 January 2017 onwards, and the entitlement should be actively pursued, Naidoo said.

Important warning for taxpayers owed money by SARS

Importantly, Naidoo clarified that if a taxpayer owes SARS money under another tax type, their refund may be applied to that debt rather than being paid to them directly.

“This is called a set-off. It does not cancel the interest you were owed. Interest still runs up to the date SARS applies that set-off, not to the date you eventually receive any remaining balance.”

She urged taxpayers to make sure the interest calculation reflects this correctly. First, they should confirm the entitlement.

Once this is done, they can take the refund amount, multiply it by the annual interest rate, multiply that by the number of days, and divide by 365.

“The start date depends on your situation. For a late VAT refund, it is the day after the 21-day deadline expires. For a successful dispute, it is the day SARS received your payment.”

“And for overpaid provisional tax, it runs from the effective date determined by your tax assessment. The end date is the day SARS pays the refund or applies it as a set-off against another debt.”

According to Naidoo, the primary deadline for a dispute is 80 business days from the date SARS issued the assessment or decision.

“If you missed that window, there is limited room to recover, as the extension is capped at 30 further business days in most cases, and after three years, the door is permanently closed.”

“Where SARS simply never paid the interest and issued no formal paperwork, a three-year prescription window applies from when the interest became due.”

She added that going to court is the last resort. This remedy is available within 180 days once every route has been exhausted.

“Do not delay. Corresponding with SARS does not stop the clock, and waiting is how most taxpayers lose a valid claim.”