How do VAT tax refunds work?
A vendor is required to calculate their VAT liability, in relation to its allocated tax period. This is done by by off-setting input tax against output tax. The difference is either paid to SARS or a VAT tax refund is paid by SARS to the vendor
If a vendor is entitled to a VAT tax refund, SARS is required to pay that VAT refund. It must be paid within 21 business days of receiving the correctly completed VAT return in respect of that VAT tax refund. If the VAT refund is not paid within 21 business days, SARS is obligated pay interest. The interest is paid at a prescribed rate on the amount that is refundable. Interest is only paid if certain conditions are met. An example would be that a VAT refund may be subject to the finalisation of the verification, inspection or audit of the VAT refund. In such an event, the 21 business days will be suspended during this period.
SARS may also withhold a VAT refund in certain cases. Examples would be:
- the vendor has not provided valid banking details,
- has not submitted all their VAT returns or
- has not paid other taxes that are administered by SARS.
How to object or appeal a SARS decision?
A vendor can object to or appeal a decision by SARS not to authorise a VAT refund.
The objection must be done in writing and an ADR 1 form must be completed. A reason for the objection must be clearly stated and all of the supporting documents must be attached. It must be sent back to SARS. An objection must be lodged within 30 business days from the date of the assessment.
The appeal must be in writing and the alternative dispute resolution 2 form (ADR 2) must be completed and sent back to SARS. This must be done within 30 business days from the date of receiving notice of SARS’s decision in respect of the objection.
You must indicate on the appeal if you wish to make use of the ADR procedures or rather appeal to the Special Board or Tax Court.
How are high risk VAT refund claims identified?
SARS uses a risk engine to objectively identify high risk VAT refund claims which could need further investigation and auditing. Vendors that are registered for e-Filing can make use of the Refund Dashboard to view the status of their VAT refunds.
Vendors that are selected for further verification of their refund claims will be requested to submit supporting documents.
