SARS failure to pay VAT refunds timeously can have a negative impact on a company’s cash flow. An aggrieved company can lodge a complaint with the Tax Ombud. But if SARS’s failure to pay the refund is more than just tardiness, and is refusing to make payment, it may be necessary to approach the courts. That is what happened in Rappa Resources (Pty) Ltd v CSARS.
Rappa was in the business of selling gold bearing bars and gold extracted from by-products of gold mining. Rappa paid VAT on its purchases but the exports were zero rated for VAT. Rappa then claimed the VAT refunds for the VAT paid to its suppliers. Its business model was such that it relied on the VAT refunds for survival. SARS notified Rappa that it was being audited and it therefore stopped the payment of R1.6 billion in refunds while the audit was taking place.
Section 190 of the Tax Administration Act, 2011 (“Act”) requires SARS to pay a refund if a person is entitled to it. To rebalance the scales in favour of the fiscus, SARS need not pay the refund if that person is under audit, until the audit has been finalised.
SARS must also pay the refund if the person under audit provides acceptable security. Rappa was unable to offer security for the full amount of the refund and SARS had refused to accept security for anything less than the full amount. The court held that this was an unreasonable position to take and it was not supported by the plain language of the statute. Rappa was entitled to a refund for as much as it was able to provide acceptable security for.
Another complaint was that SARS had withheld refunds for periods that were not yet under audit, SARS issuing audit notices well after Rappa complained. The Court held that this practice cannot be condoned. SARS cannot hold funds for any period where refunds are due for periods not under audit.
Where SARS has withheld a refund, particularly if the refund is integral to the business model of a taxpayer, the court held that SARS cannot be allowed to take an indefinite time to complete its audit. If that was the case, the Act would be inherently unfair towards the taxpayer. The audit must be completed in a reasonable time, taking into account the circumstances.