Taxpayers not responding in time to requests for relevant material supporting their value-added tax (Vat) returns have been forewarned. The South African Revenue Service (Sars) will, from now on, issue estimated assessments.
The Vat vendor will no longer be allowed to submit a request for correction for the same period once the estimated assessment has been issued. A Vat vendor normally has five years to submit a request.
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The implementation of estimated Vat assessments where taxpayers fail to respond to a request for so-called relevant material timeously should not come as a shock, says Webber Wentzel consultant Des Kruger.
“Sars has been empowered to do so since the introduction of the Tax Administration Act (TAA) in 2011. It is apparent that while empowered to do so, Sars lacked the functionality to do so. Now it does.”
The process
Zulfah Mullins, tax compliance officer at Hobbs Sinclair, highlights that vendors who disagree with the estimated assessment must submit their supporting documents within 40 business days of receiving the notice.
If the taxpayer cannot submit the documents within the time allowed, they may request an extension, but only in certain circumstances.
Since the estimated assessment may result in an obligation to pay tax, Vat vendors are advised to request a suspension of payment.
According to Charles de Wet, tax executive at ENSafrica, once a taxpayer submits their return and receives a verification letter, they generally have 21 days to submit the requested documents. Once that deadline is missed, Sars will automatically issue the estimated assessment. The second deadline is the 40 business days unless a further extension is granted.
De Wet believes the estimated assessment will be based on the writing back of input taxes. “The process may be different, but I think the outcome will be the same. It means there is now an interim phase before entering the dispute phase.”
Objections and appeal
Kruger says although a request for correction will not be permitted once an estimated assessment has been issued, Sars correctly notes that the taxpayer has a second bite at the cherry in the form of a further 40 days to request a reduced assessment.
Should Sars refuse the request, the taxpayer can object and appeal the estimated assessment. He disagrees with Sars’ view that the vendor will not be allowed to object since an estimated assessment is not subject to dispute.
Aneria Bouwer, senior consultant at Bowmans, shares Kruger’s view. If the taxpayer has submitted the relevant documents, but Sars refuses to revise the estimated assessment, the taxpayer is allowed to object.
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“I think the Sars notice is misleading. It states that the vendor will not be allowed to submit a notice of objection as an estimated assessment issued in terms of the TAA is not subject to dispute. That is not correct,” Bouwer says.
Sars may issue an estimated assessment if they are not provided with the relevant information. However, the act only states that the assessment will not be subject to objection or appeal if Sars and the taxpayer agree in writing to an amount that is payable.
“If the vendor provides the supporting documents and Sars does not revise the assessment, the taxpayer can object to the assessment.” Sars’ communication is not clear, Bouwer adds.
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Timelines
She advises taxpayers to watch the timelines given in the correspondence from Sars. If they cannot submit the relevant documents within the 40 business days, they should request an extension and a suspension of payment.
It is particularly important to watch the timelines this time of the year as the 40 business days generally exclude mid-December to mid-January. This does not mean taxpayers should consider it a “safe period”. It is important to keep an eye on any eFiling notifications.
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Mullins stresses that the change underlines the importance of timely compliance, as it will significantly impact how Vat vendors manage their submissions and handle assessments.
De Wet also stresses the importance of responding to Sars as soon as the verification letter has been issued. Sars must be provided with sufficient information to make an informed decision. “Do not ignore Sars correspondence.”
Compliance
Kruger believes the provisions that are now activated balance the interests of both Sars and taxpayers. Although the estimated assessment process has been available for a long time, Sars has decided to enforce it as it is being frustrated by taxpayers not responding timeously to requests for information.
“This is indeed a warning from Sars that taxpayers should attend to its requests timeously,” says Kruger.
They can prevent a protracted process of requests for reduced assessments, objections and appeals by simply supplying the necessary information in the first place.
This is part of Sars’ general clamp down on compliance, says Bouwer.
“One of their big frustrations is non-compliance with submission deadlines and not receiving verification material on time. Sars wants to be able to deal with a tax matter, finalise it within a specific period and move on.”
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