VAT REFUNDS FOR VENDORS
How do VAT refunds 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 paid on the acquisition of goods and services that is allowed as a deduction) against output tax (i.e. VAT charged on the supply of goods and services by the vendor). The difference is either paid to SARS (if output tax exceeds input tax) or a VAT refund is paid by SARS to the vendor (if input tax exceeds output tax).
If a vendor is entitled to a VAT refund, SARS is required to pay that VAT refund within 21 business days of receiving the correctly completed VAT return in respect of that VAT refund. If the VAT 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, interest is only paid if certain conditions are met, for example a VAT refund may be subject to the finalisation of the verification, inspection or audit of the VAT refund, in which case the 21 business days will be suspended during this period.
SARS may also withhold a VAT 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.
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 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. 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 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 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.
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.