“Seriously worrisome” is how the tax ombud, Judge Bernard Ngoepe, described some of the findings in a report by his office into the delayed payment of tax refunds by the South African Revenue Service (Sars).
He found the Sars systems allowed it to “unduly delay the payment of verified refunds to taxpayers in certain circumstances. This has become a systemic issue. The system does not sufficiently protect taxpayers,” he said.
The findings included, among other things, that Sars raised tax assessments to absorb credits, often by the exact amount of the credit that was recorded.
In one of the examples listed, a taxpayer accidentally paid their VAT account twice. But, after Sars was given proof of the duplicate payment, and a request for the credit to be refunded, it raised an assessment to absorb the credit, amounting to R121 269 – or exactly the same amount as the undisputed overpayment.
The findings raised serious questions about the agency’s reported revenue collection amounts, said the Democratic Alliance’s Alf Lees, including the “record” tax collections of R1.144-trillion announced for the 2016 tax year.
The treasury said it was studying the report and could not comment.
The report comes at a time when Sars is embroiled in state capture claims, allegedly giving preferential treatment to the Gupta family, including the reported repayment of a suspect R70-million VAT refund.
It has refuted these claims.
Tax practitioners say although the complaints about refunds are not linked to issues of state capture, the refunds issue has become part of “a wider narrative of distrust between taxpayers and the public sector”.
In cases where Sars raised tax assessments to absorb credits on taxpayers accounts, the ombud said, by doing so, “Sars creates fictitious tax liabilities, instead of taking a decision on a refund”.
A decision on a refund is subject to an objection and appeals process. But the ombud found that “Sars avoids this, it seems, by raising an assessment, a step which takes the dispute resolution procedure in another direction, away from paying the refund”.
In a Sars response contained in the report it said it had “discontinued this practice … where it is inappropriate”. But the tax ombud “strongly” recommended that this “should cease altogether”.
Other practices included Sars’ refusal to release refunds that have been verified for a specific tax period until all audits or verifications that may be pending for another period have been finalised. This, the ombud found, goes against the Tax Administration Act.
Another concern raised was the use of historical tax returns to block refund repayments.
Industry bodies had complained that “returns that have never been shown as outstanding … suddenly reflect as outstanding and then used as reason for not paying refunds”, according to the report. “This is done notwithstanding the fact that previous refunds were released.”
This practice is “wrong and should cease”, the ombud recommended.
In its response in the report, Sars said, because a specific case could not be cited, the ombud should not include this in his finding. But Ngoepe found that the lack of illustrative cases “does not eliminate the fact that a complaint was received … nor does it mean that there are no taxpayers out there who, though they did not complain for a variety of reasons, suffered the hardships complained of by those who did”.
The report also flagged the unwarranted use of “special stoppers” to prevent refunds being paid out and undue delays in lifting these once issues about a refund had been resolved.
Although some findings were more serious than others, Ngoepe said: “If the truth has to be told, any taxpayer whose verified refund is being withheld for whatever reason is seriously disadvantaged.”
The findings related to “less than 1% of all the refunds that Sars processes”, Sars said in a statement, arguing that the report confirmed its view that it “did not deliberately hold back refunds to boost revenue collection”. It also said it “has implemented certain corrective measures … to close the gaps” identified in the report.
It added that Ngoepe’s finding that the problems were systemic was “unfortunate as they are the exception rather than the rule”.
But Ngoepe and the chief executive of the ombud’s office, Eric Mkhawane, emphasised, although the findings related to less than 1% of refunds made, the analysis done on Sars’ credit book showed that a sample of the top 630 credits represented more than R25-billion in monetary value.
“The withholding of these refunds may have a significant impact on the collected revenue, and a devastating negative impact on the finances of individual taxpayers in varying degrees,” the report noted.
To say this only affected less than 1% of refunds did not take the discussion further, said Mkhawane.
“You can pay everyone else, but if you withhold just the top 630, you will have actually denied taxpayers R25-billion.”
Sars said assessments and refunds were dealt with through a risk engine governed by titles and processes to ensure impartiality.
Sars has yet to finalise investigations into high-ranking official Jonas Makwakwa. The Financial Intelligence Centre reported suspicious transactions on his bank account to Sars commissioner Tom Moyane last year.
But Sars defended the delay, saying it was due to the gravity of the allegations that it had allowed the internal process to run its course. It expected this would be concluded by the end of this month.
In another development, last week Sars employee Vlok Symington lodged an application in the high court to interdict the agency from instituting disciplinary charges against him. He says these are linked to alleged efforts by Hawks officials and Moyane’s bodyguard to suppress evidence related to the aborted prosecution of former finance minister Pravin Gordhan and other former Sars officials.
Sars will not comment on the issue, saying it is before the courts.
Keith Engel, the chief executive of the South Africa Institute of Tax Practitioners, said the issue of refunds has “become part of the narrative of distrust between taxpayers and the public sector”, damaging taxpayer moral.
Businesses now question whether legitimate refunds will be paid timeously if at all, Engel said, adding that “Sars largely views VAT refunds as a threat and a taxpayer privilege.” But it is ultimately a consumption tax that “should never fall on business”.
The failure to pay legitimate refunds meant that businesses were subject to an “unintended cash-flow charge” that could destroy the viability of a business, he said.