What is a VAT refund?
A VAT refund is an amount of VAT that is payable by SARS to a vendor, where
the total amount of input tax exceeds the total amount of output tax in a particular tax period, or
a vendor has paid an amount of VAT, in excess of the amount that should have been paid to SARS.
How do VAT refunds for vendors work?
A vendor is required to calculate their VAT liability, in relation to its allocated tax period, by off-setting input tax (i.e. VAT that is charged on the acquisition of goods and services and which is allowed as a deduction) against output tax (i.e. VAT that is charged on the supply of goods and services by the vendor). The difference is either paid to SARS (this occurs when output tax exceeds input tax) or a refund is claimed from SARS (this occurs when input tax exceeds output tax).
If a vendor is entitled to a refund, SARS is required to pay that refund within 21 business days of receiving the correctly completed VAT return in respect of that refund. If the refund is not paid within 21 business days, SARS will have to pay interest, at the prescribed rate, on the amount that is refundable. However, the period of 21 business days may be suspended, in which case no interest is payable. For example a refund may be subject to the finalisation of the verification, inspection or audit, in which case the 21 business days will be suspended until the audit is finalised.
SARS may also withhold a refund, where, for example, the vendor has not provided valid banking details, or has not submitted all their VAT returns, or has not paid other taxes that are administered by SARS.
May a vendor object or appeal when SARS does not authorise a VAT refund?
A vendor can object to or appeal a decision by SARS not to authorise a VAT refund.
The objection must be in writing and the alternative dispute resolution form (ADR 1 form) must be completed. The reason for objection must be clearly stated and the supporting documents must be attached and sent back to SARS. The 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 form (ADR 2 form) must be completed and sent back to SARS within 30 business days from the date of receiving notice of SARS’s decision in respect of the objection.
On appeal indicate whether you wish to make use of the Alternative Dispute Resolution (ADR) procedures or rather appeal to the Special Board or Tax Court.
How is high risk VAT refund claims identified?
SARS uses a risk engine to objectively identify any risks that may be associated with the refund, which warrants further investigation and auditing. Vendors that are registered for e-Filing can make use of the Refund Dashboard to view the status of their refunds.
Vendors that are selected for further verification of their refund claims will be requested to submit supporting documents.
Top Tip: Due to concerns involving VAT fraud, the use of third party banking details will only be permitted in two instances, firstly, where the vendor is a foreign company and secondly, where the vendor falls within the ambits of a “group of companies” (i.e. the vendor is either a subsidiary company or a holding company). In both cases, the vendor must supply the necessary authority from the account holder (for example, company resolution) and indemnify SARS against possible losses of amounts that are paid into the nominated bank account. The vendor is required to complete a VAT119i form for this purpose.