VAT Chancers: SARS’ attempt to curb VAT fraud explained

You may again need to visit a SARS branch when registering for VAT as SARS attempts to clamp down on fraud. VAT experts explain why VAT is especially vulnerable to fraud, and the Tax Ombud notes that refund delays remain a concern.

SARS recently announced it’s beefing up its VAT registration process, including potentially requiring new registrants to make branch visits.

The move comes after SARS, “noticed a trend of suspicious registrations by VAT vendors,” according to its media statement. 

Why VAT is vulnerable to fraud

“Due to the self-assessment nature of VAT submissions, there is far greater potential for fraud than on the income tax side of things because, with income tax, there is third-party data that SARS can rely on,” says Jonathan Bellingan, tax compliance at Omne Advisory. 

While SARS does verification checks there are limitations, says Bellingan. “[SARS may say] give us a sample of your top ten invoices. Well happens to invoices 11, 12 and 13?” 

Victor Terblanche, Director of VAT IT SA says that VAT fraud is a global problem and that the most common scheme involves VAT registered companies claiming expenses they never incurred.

“This results in fraudulent VAT refunds which are then substantiated with fake invoices. I believe that this is one of the main reasons why SARS is introducing more stringent requirements for Taxpayers seeking new VAT registrations.”

VAT refund delays persist according to the Tax Ombud 

The new registration developments occurred in the same month the Office of the Tax Ombud (OTO) published a case study stating, “Delays in the payment of tax refunds continue to affect taxpayers.” The Ombud notes, “The value of the top ten refund cases where the Office of the Tax intervened to assist taxpayers to have the refunds paid out [In 2021/22] was over R215 million.” 

The OTO notes, “When the root cause of a taxpayer’s complaint has been listed as a systemic issue, taxpayers do not have to exhaust the SARS internal complaints resolution mechanism and can lodge a complaint directly with the OTO. 

“For example, you can approach us directly when a delay in the payment of tax refunds is due to SARS omitting to lift a stopper placed on the account.” 

In its media statement, SARS notes that it paid a record R381 billion in refunds in 2022/23 and, it’s “committed to paying legitimate refunds to qualifying taxpayers as and when they become due.”

“I doubt whether SARS’ emphasis on refund fraud will affect turnaround times on legitimate refunds,” says Terblanche.

“In our experience, there has been a substantial improvement by SARS in finalising and paying out VAT refunds. VAT refunds are generally paid within 21 business days from submission of the return, subject to the Taxpayer timeously providing SARS with the required documentary proof to substantiate the claim.

“However, we do sometimes experience delays where a historic refund verification has been finalised by SARS but the payment is held back due to a verification being performed on a current month’s claim.” 

SARS is trying to find the Goldilocks zone

Bellingan says the new registration measures are SARS’ latest attempt to strike a careful balance.

“SARS has to ensure that the fiscus is stabilised, along with making business happen,” says Bellingan. He points out that in recent years SARS has moved over significantly towards easing VAT registration – by using technology. 

“In the past, if you [wanted to do a VAT registration, you [or a public officer or a tax practitioner with power of attorney] needed to go to a branch office, sit in front of a consultant, provide that consultant with a whole bunch of supporting documentation,” says Bellingan. This documentation list included company documents, proof of address, and invoices. 

“The requirements were quite stringent.”

SARS then moved VAT registrations online to their eFiling system but kept the stringent supporting documentation requirements. “While a little bit painful, there were at least checks and balances. Now, in the last year or so, you are able to do a VAT registration, and there is no request for an upload of supporting documentation,” says Bellingan. 

Bellingan would rather SARS returned to a system using eFiling registration, which included submitting supporting documentation, rather than potential in-person branch visits. 

It’s currently unclear if all new VAT registrations will require a branch visit or if only some registrations trigger this step.

Terblanche advocates making use of international best practices,  he points to the EU’s use of electronic invoicing between government entities and suppliers. Terblanche notes that a recent SARS media release points to the revenue provider using more tech solutions. 

Terblanche says, “The steps proposed by SARS for VAT registrations will, unfortunately, place a bigger burden on the legitimate taxpayer, and it may affect the turnaround time to obtain a VAT registration number.

“However, these steps are necessary, and with the utilisation of technology and a reasonable turnaround time from SARS, it may have more benefits for all parties concerned.”

To read more regarding our reporting on this issue, check out our summary of the initial SARS announcement as well as an opinion piece looking at the costs of fraud prevention versus the cost of compliance.