Resolve VAT Disputes In South Africa

Value-Added Tax (VAT) is a critical component of South Africa’s tax system, playing a central role in government revenue collection. Businesses registered for VAT must comply with stringent regulations set by the South African Revenue Service (SARS). However, compliance issues, filing errors, and disagreements over VAT treatment often result in disputes between taxpayers and SARS. These disputes can be costly and time-consuming, making it essential for businesses to understand the common causes of VAT disputes, the resolution process, and strategies to prevent such issues.

What Is VAT?

Value-Added Tax (VAT) is a tax applied at each stage of the supply chain on the value added to goods and services. It is collected by businesses registered as VAT vendors and paid to the South African Revenue Service (SARS). VAT applies to most transactions, except those specifically exempt or zero-rated.

Who Should Register For VAT

A person or entity can register for VAT only if they are carrying on an enterprise. This includes individuals, companies, partnerships, trusts, municipalities, and other organizations conducting business activities in South Africa. An enterprise is defined as any continuous or regular activity involving the supply of goods or services for payment, regardless of whether the business is making a profit. The focus is on the act of supplying goods or services for consideration, not the financial outcome of those activities.

Some entities, such as public authorities, welfare organisations, share block companies, and foreign donor-funded project agencies, are specifically included. Activities that do not qualify as an enterprise include exempt supplies, employment income, hobbies, private occasional transactions, and small-scale commercial accommodation under R120,000 annually.

Compulsory Registration

Businesses must register for VAT if their taxable supplies exceed R1 million in any consecutive 12-month period. The registration application must be submitted within 21 business days once this threshold is met. Non-resident suppliers of electronic services must also register when their taxable supplies exceed R1 million.

Voluntary Registration

Businesses may register voluntarily if their taxable supplies exceed R50,000 in the past 12 months. Certain entities, such as municipalities, welfare organisations, and those acquiring a business as a going concern, may register even if they have not yet reached this threshold. Specific industries, including agriculture, mining, manufacturing, and infrastructure development, may also qualify.

A voluntary VAT registration application may be supported by evidence of taxable supplies exceeding R4,200 per month in recent months, written contracts, or financial agreements showing expected taxable supplies over R50,000.

How To Register For VAT

Businesses can register for VAT online through SARS eFiling or by booking a virtual appointment via the eBooking system. eFiling provides an immediate VAT reference number if no risk is detected, while the eBooking system allows applicants to complete registration with SARS assistance.

Efiling

VAT registration can be completed online through SARS eFiling. Businesses must log in or create an eFiling profile, navigate to the SARS Registered Details section, select VAT under tax products, and complete the required information, including business details, banking information, and tax period selection. If no risk is identified, SARS issues a VAT reference number immediately.

Virtual Appointment

Businesses that cannot register through eFiling can request a virtual appointment via the SARS eBooking system. The appointment allows applicants to complete registration with SARS assistance by selecting VAT registration as the reason for the meeting. Supporting documents must be submitted through eFiling, the online query system, or an in-person appointment.

Obligations Of A VAT Vendor

VAT vendors must comply with various obligations, including charging VAT at the applicable rate, ensuring VAT is included in advertised or quoted prices, issuing valid tax invoices, submitting VAT201 returns on time, and keeping accurate records for five years. Required documentation includes tax invoices, bills of entry for imports and exports, and accounting records. Compliance with these requirements ensures accurate VAT reporting and reduces the risk of disputes with SARS.

SARS Penalties And Interest Charges

SARS imposes penalties and interest on businesses that fail to meet their VAT obligations. These charges are applied to encourage compliance and to recover outstanding amounts efficiently.

Penalties and interest include:

• A late payment penalty of 10% is applied to any unpaid VAT amount that is not settled by the due date.
• Interest on unpaid VAT is calculated daily at the prescribed rate and continues to accrue until the outstanding amount is fully paid.

Businesses can request remission of penalties if they can demonstrate valid reasons for non-compliance.

Common Causes Of VAT Disputes

VAT disputes arise when businesses and SARS disagree on VAT-related matters, leading to challenges in compliance and financial consequences. Disputes can create uncertainty and conflict, requiring resolution through SARS’ formal dispute mechanisms.

VAT Registration Issues

Many disputes arise regarding SARS’ refusal to register businesses or its cancellation of existing VAT registrations.

Compulsory Registration

Businesses that meet the R1 million threshold must apply for VAT registration within 21 business days. If they fail to do so, SARS may impose penalties. In cases where businesses believe they were incorrectly denied registration or canceled without justification, disputes may arise.

Voluntary Registration

Businesses with taxable supplies below R1 million but above R50,000 in a 12-month period may voluntarily register for VAT. Certain entities, such as municipalities and welfare organisations, may qualify for voluntary registration without meeting the R50,000 threshold. SARS may reject voluntary registration applications if businesses fail to meet specific criteria, leading to disputes.

Cancellation Of VAT Registration

SARS may cancel a VAT registration if a business ceases trading, no longer meets the requirements for registration, or fails to comply with VAT regulations. Disagreements over whether a business should remain registered can result in disputes.

VAT Filing Errors

Incorrect VAT filings are a significant source of disputes. VAT returns (VAT201) must accurately report output VAT (collected from customers) and input VAT (claimed on business expenses). Errors in these filings can lead to SARS rejecting VAT returns, imposing penalties, or issuing incorrect assessments.

Common VAT filing errors include:

• Underreporting or overreporting VAT amounts.
• Incorrectly applying VAT rates to supplies.
• Failing to submit VAT returns on time, resulting in penalties and interest charges.
• Claiming input VAT on expenses that do not qualify under SARS rules.

VAT Refund Disputes

VAT refunds occur when a business’s input VAT exceeds its output VAT, resulting in a claim for reimbursement from SARS. SARS is required to process refunds within 21 business days of receiving a correctly completed VAT return. However, disputes frequently arise due to delays or refusals of refund claims.

SARS may withhold VAT refunds under the following circumstances:

• The VAT return is incomplete or defective.
• The business has outstanding VAT returns or tax liabilities.
• SARS is conducting a verification, inspection, or audit of the refund claim.
• The business has not provided valid banking details for payment.

If a VAT refund is delayed beyond 21 business days without valid justification, SARS must pay interest on the amount owed. Businesses may dispute SARS’ refusal or delay in processing refunds through the objection and appeal process.

Tax Period Classification Disputes

Businesses are assigned specific VAT reporting periods based on their turnover and business activities. SARS determines a business’s tax period category, which affects how frequently VAT returns must be submitted.

• Category A & B: Businesses file VAT returns every two months.
• Category C: Businesses with taxable supplies exceeding R30 million must file VAT returns monthly.
• Category D: Farmers and micro-businesses with taxable supplies below R1.5 million may file VAT returns every six months.
• Category E: Businesses engaged in specific activities, such as property letting, may file VAT returns annually.

Disputes arise when businesses believe they have been incorrectly classified or wish to change their VAT reporting frequency.

VAT On Cross-Border Transactions

Businesses engaged in cross-border transactions often face VAT compliance challenges. SARS enforces strict VAT rules on imports, exports, and electronic services provided by non-resident suppliers.

Non-Resident Electronic Services

Non-resident suppliers of electronic services (e.g., software, digital content) must register for VAT in South Africa if their taxable supplies exceed R1 million. Disputes arise when SARS determines that a foreign supplier should be registered but the supplier disputes its VAT liability.

VAT On Imports And Exports

Importers may face disputes over VAT on goods brought into South Africa, especially regarding the correct valuation and VAT exemptions. Similarly, exporters may face challenges in proving their zero-rated status.

Misclassification Of Goods And Services

VAT rates vary depending on the classification of goods and services. Some supplies are zero-rated (0% VAT), while others are VAT-exempt or subject to the standard 15% rate. Businesses often dispute SARS’ classification of their supplies, leading to disagreements over VAT liability.

Zero-Rated Supplies

Items such as certain basic foodstuffs qualify for zero-rating, but businesses must meet strict requirements to apply the zero rate.

Exempt Supplies

Certain services, such as financial services and residential property rentals, are exempt from VAT. Businesses may dispute whether their transactions qualify for VAT exemption.

Resolving VAT Disputes With SARS

When a VAT dispute arises, businesses must follow SARS’ dispute resolution procedures to challenge assessments, refund denials, or registration issues.

Contact SARS

Before escalating a dispute, businesses should attempt to resolve issues directly with SARS. This may involve:

• Reviewing VAT calculations and submitting amended VAT returns.
• Providing additional documentation to support VAT claims.
• Contacting SARS via eFiling or scheduling an appointment to discuss the issue.

The VAT Objection And Appeal Process

If SARS issues an unfavourable assessment or decision, businesses have the right to object and appeal. These can be lodged through eFiling or at a SARS branch. If the matter remains unresolved, it may be escalated to the Tax Court or an alternative dispute resolution process.

Objection

A business must submit an objection within 30 business days of receiving the disputed assessment or decision. The objection must include detailed reasons and supporting documents.

Appeal

If SARS rejects the objection, the business may appeal the decision within 30 business days of receiving the objection outcome.

Vat Refund Dispute Process

If SARS refuses or delays a VAT refund, businesses may take the following steps:

1. Ensure all VAT returns are submitted and complete.
2. Verify that banking details are correctly updated with SARS.
3. Submit an objection if the refund is unjustly withheld.

If SARS does not pay a refund within 21 business days without justification, businesses may claim interest on the overdue amount.

Strategies To Avoid VAT Disputes

Businesses can minimise the risk of VAT disputes by implementing robust compliance practices.

• Timely VAT Filing and Payments
  • Submit VAT returns (VAT201) on time through eFiling.
  • Pay VAT using approved methods to avoid penalties.
• Accurate VAT Calculations
  • Reconcile input and output VAT regularly.
  • Apply correct VAT rates to goods and services.
• Proper Record-Keeping
  • Maintain VAT invoices and supporting documents for five years.
  • Keep financial records up to date to substantiate VAT claims.
• Seeking Professional Assistance
  • Consult tax practitioners for VAT compliance guidance.
  • Use VAT software to automate calculations and reduce errors.

Manage VAT Compliance And Resolve Disputes With TAT Accountant

VAT disputes can be frustrating and time-consuming, often leading to unexpected financial strain, delayed refunds, or penalties that disrupt cash flow. Many businesses struggle with navigating SARS requirements, dealing with complex VAT filings, or contesting assessments they believe are unfair. When faced with these challenges, knowing the right steps to take can make all the difference.

At TAT Accountants, we help businesses resolve VAT disputes efficiently, ensuring compliance while minimising financial risks. Whether you need assistance with VAT registration, filing corrections, or disputing SARS decisions, our team provides expert guidance tailored to your situation. Get in touch with us to manage your VAT obligations with confidence and avoid unnecessary penalties.