In the 2023/24 financial year, South Africa’s VAT refunds hit an unprecedented R342.9-billion, reflecting a robust 7.5% increase year-on-year, as reported in SARS' latest annual report. While this growth signals healthy refund activity, the payouts still fell R7.9-billion short of the estimate. This shortfall highlights the ongoing challenge for SARS to strike a fair balance between rigorous fraud checks and the timely release of refunds to compliant businesses.

Justifiable Audits, But Timeliness is Crucial

SARS has a clear mandate to audit VAT refunds to combat fraud and abuse, but these necessary reviews cannot justify excessive delays. Prolonged delays have been a persistent issue for South African businesses, impacting cash flow and operational stability. While SARS’ role in preventing fraudulent VAT claims is vital for revenue protection, taxpayers are also legally entitled to timely refunds. Both the VAT Act and the Tax Administration Act (TAA) contain protections, including interest provisions on delayed refunds when SARS fails to meet stipulated timelines.

Under the TAA, SARS is obligated to complete its verification or audit within 21 business days after a VAT return submission. If additional time is needed, SARS must provide reasons for the delay and keep taxpayers informed of the audit’s status. Should the refund process exceed a reasonable timeframe, taxpayers may seek legal recourse, which includes the right to interest on delayed refunds.

Legal Avenues for Delayed VAT Refunds

When VAT refund delays stretch beyond reasonable limits, businesses can turn to legal avenues for relief. With the guidance of a qualified tax attorney, businesses can hold SARS accountable for prolonged and unjustified delays. Legal precedents have established that SARS cannot delay a VAT refund due to unrelated audits on other periods or tax types. This case underscores the importance of focused, timely audits directly related to the refund period in question.

Interest on Delayed Refunds

For businesses experiencing significant delays in VAT refunds, using legal steps to compel payment of interest on delayed refunds is an option worth exploring. Section 45 of the VAT Act allows taxpayers to claim interest on delayed refunds if SARS does not release the refund within the stipulated 21 business days. This entitlement is conditional upon submitting a complete VAT return and providing SARS with any requested information or banking details. Consulting with a tax attorney can help businesses navigate this process effectively and secure what they are owed.

Conclusion: Upholding Taxpayer Rights in Refund Delays

While SARS’ vigilance in VAT refund scrutiny is necessary, taxpayer rights to timely refunds must also be respected. Businesses have a range of legal protections to counteract undue delays, with interest on late refunds providing a critical safeguard. For those facing prolonged delays, working with a tax attorney can help ensure SARS meets its obligations, keeping the refund process fair and transparent for South Africa’s business community.

Written by André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA; and Colleen Kaufmann, Senior Tax Attorney at Tax Consulting SA