The VAT Compliance Landscape

The VAT Compliance Landscape

• 06 May 2020
• VAT
• Nico Theron

Thursday, 21 September 2017

Important:

This article is based on tax law for the tax year ending 28 February 2018.

Author: Nico Theron

VAT use to be a simple tax for taxpayers to comply with. Returns would go in regularly with very little hassle and SARS’ audits or verifications seldom resulted in an assessment. Not anymore.  With VAT fraud being more prevalent now than ever before (at least that is what we are told), all taxpayers are seemingly treated on the assumption that there might be a snake in the grass.   

This has resulted in an increase in the number of VAT returns being verified or audited by SARS and which in turn has resulted in an increase in the number of VAT assessments being raised. The famous IT14SD too is being used to check VAT compliance and is known for resulting in assessments, mostly either on VAT or income tax. To make the tax knock even worse, SARS have started raising understatement penalties or USP on these assessments from anything between 10% to 125%.

Assessments are, however, sometimes raised incorrectly by SARS to the frustration of taxpayers. This appears to be caused, at least in part, by the fact that SARS have seemingly not yet been fully geared to constructively address the fiscal concerns associated with VAT fraud through skillful audit and/or verification and the poor economic climate placing increasing pressure on collection targets.

It is also, in our experience, unfortunately true that taxpayers (or their employees) sometimes inadvertently play a part in causing the resultant (incorrect) assessments. This, however, is to be expected in many cases. Very few taxpayers have geared themselves properly for effectively and constructively dealing with VAT compliance at the level that is required in the current VAT compliance landscape.

It is evident then that the VAT compliance landscape is primed for miscommunication between taxpayers and SARS, resulting in assessments compromising tax compliance status and tax disputes which eat into profit margins.

Perhaps as a first step to dealing with this situation, taxpayers should make peace with the fact that SARS has a duty to collect and prevent VAT fraud, amongst others. This is not going to change. VAT verifications and audits are here to stay.  As second step, efforts should be focused on gearing for effectively dealing with VAT verifications and audits. (The fact that SARS may also need to do some introspection may well be true but perhaps best one focuses on addressing the business risk as opposed to trying to solve SARS’ (and the country’s) problems).  

Gearing for the current VAT compliance landscape means getting a strategic partner on board to assist in effectively dealing with the higher standard of VAT compliance. A strategic partner should assist with a holistic solution to save cost over the long term as opposed to providing a band aid-solution. One way of doing this is to:  

Train employees on the substantive and procedural VAT law associated with the business being conducted by the taxpayer. It is only in this way that taxpayer and its employees can understand what they are being called upon by SARS to prove and to self-assess the accuracy of returns being filed;

Putting a bespoke procedure in place to deal with the requests and templates for responding appropriately and effectively to SARS in a manner that has the best chance of preventing an assessment from being raised; and

Provide support for when assessments are nevertheless raised by SARS to ensure disputes are dealt with in a strategic, effective and constructive manner that keeps SARS to the prescribed timelines and issues in dispute.   

Taxpayers who find themselves constantly at odds with SARS over VAT would do well to find a strategic partner to deal with the conflict so that VAT does not become or continue to be a hindrance to business.

This article first appeared on unicustax.co.za.

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