Tax ombud blasts downplaying of delay in multibillion-rand refunds

Bernard Ngoepe. Picture: Lesetja Malope
Bernard Ngoepe. Picture: Lesetja Malope

South African Revenue Services officials and not mechanical system clitches were responsible for billions of rands in tax refund payments being delayed.

In an interview with City Press shortly after the release of the investigation report into allegations that Sars was using a number of tactics to delay refunding taxpayers, tax ombud Judge Bernard Ngoepe said, though the overall number of taxpayers affected was very small, the value of the refunds affected amounted to billions of rands.

This came after Sars issued a statement in response to the report stating that the investigation’s damning findings were in relation to “less than 1% of all the refunds that Sars processes”.

The statement, issued a few hours after the release of the report, also stated that: “It is unfortunate that the tax ombud has arrived at the conclusion that the obstacles are systemic in their nature, as they are the exception rather than the rule.”

Chief executive of the office of the tax ombud, Advocate Eric Mkhawane, said the investigation found that the complaints all stemmed from instances where Sars officials were in control and not the computerised part of the filing system.

“The computer does not have a problem at all; there are no problems there. The problem is where there is human intervention and with that human intervention that is where the delays are occurring,” Mkhawane said.

Mkhawane said the 630 cases, from an overall of about five million cases, whose refunds were above R10 million had amounted to a fortune in value.

“There are five million credit cases and 630 of that is 0.01 % of all the cases, so if you just pay all except the 630 cases, you have just held back R25 billion in refunds. That’s how big it is,” he said adding that the impact the delays had on taxpayers were very serious.

“You can’t tell the taxpayer that ‘you’re one of the 0.01% don’t worry’ – that person is facing some serious hardships,” Mkhawane said.

Ngoepe clarified that the majority of the cases that are processed via computers are paid well on time without delays and the only problem was when the cases needed to be handed over to officials either for verification or auditing.

The 81-page report also specifically refers to the 630 cases each with refunds of a minimum of R10 million and said it found that the value of the credits in those cases amounted to more than R25 billion. “During the probe the office sampled 60 cases and, of that, 54 were older than 60 working days. Of these, 16 were paid – only one of which was paid out before the end of the 2016/2017 financial year – and four were reduced significantly through additional assessments. Of the 54 cases, 38 refunds therefore remained unpaid. In respect of four of the 38, we could not establish the cause of the delay.”

According to Ngoepe, the report’s recommendations were not legally binding on Sars. But should Sars opt not to comply, it would have to explain such a decision, unfortunately– not to the office of the ombud but to Parliament.

“We have no mechanism through which to force Sars to comply. What we do as office of the tax ombud is to submit reports to Parliament,” Ngoepe said, adding that it was up to Parliament to raise any issues they may have with the Sars responses.

The office also did not have powers to impose any penalties.

“The fundamental role of the office is to facilitate resolution of the problems and not to replace other existing legal avenues open to the taxpayer like going to court,” Ngoepe said.

Top among the various worrying findings uncovered by the probe was the fact that in some cases the assessments amounted to exactly the same amounts owed, right down to the last cents.

“Why we say it’s more serious is because there’s no legal basis that could be found to justify it. What is shocking is that maybe if Sars owed you R10 then they raise an assessment of R10 to offset that R10.” he said.

“To illustrate this point. maybe they owe you R15.21 then they raise an assessment and say well we found that you owe us R15.21, the exact amount to the cents,” Ngoepe said in support of Mkhawane’s point.

Overall, Ngoepe said he was happy with the probe, which was the first of its type conducted by the office since its creation.

Below is the response from Sars spokesperson Sandile Memela:

Tough economic times increase the likelihood for fraud and hence Sars takes a risk-based approach through tightening its risk rules, as it detects fraudulent activity.

This is in the interest of ensuring all revenue due to the fiscus as well as ensuring that only correct refunds are paid to the correct customer.

During the period under review (July 2016 – March 2017), we tightened our risk rules and in particular were more stringent in verifying taxpayers’ personal details such as banking details, resulting from an increase in identity theft and banking detail scams.

A list of these scams is published on our website as and when they are detected. Taxpayers were required to verify their details, in person, at a Sars branch.

Some of the reasons a refund cannot be immediately released are:

• Insufficient documentation supplied by the taxpayer;

• Cases identified for audit due to possible fraud;

• Outstanding returns for other tax periods;

• Insufficient or contradictory taxpayer information; and

• Discrepancies such as more than six returns submitted in a six-month period (in the case of VAT mainly).

These will result in a delay of the usual turn-around time of 72 hours (which applies to the absolute majority of returns we process) and depending on the responsiveness of the taxpayer and the supply of the necessary records, the time it takes to assess a return and resolve any payments will take longer. Outstanding requirements by a taxpayer are communicated to the taxpayer immediately.

It is not in the interest of Sars to withhold refunds as the release thereof is critical to keep economic growth momentum at a high level, which in itself is beneficial to tax revenue realisation. Sars must however balance risk and service.

Sars has considered all the recommendations by the ombud that have been made and in some cases has already implemented changes that should adequately deal with the ombud findings. In respect of certain areas raised by the ombud, more detailed work and prioritisation would be required in order to determine the impact on Sars systems. Some of the requirements such as splitting the diesel and VAT refunds require some legislative work and the public will be engaged in this regard in order to obtain comment while other changes will need to be prioritized for future development depending on the complexity thereof.

The amendment to the Customs and Excise Act 91, of 1964 (C&E Act), to provide for the VAT and Diesel split are included in the tax administration laws amendment bill of 2017. The details of the stand-alone diesel refund system will be contained in the rules to the C&E Act. These rules will be published for public comment by early 2018.

In the course of the last financial year, Sars refunded in excess of three million taxpayers and vendors with total refunds exceeding R200 billion. It is in this context that Sars referenced in its response to the ombud’s findings that the number of complaints in respect of delayed refunds was less than 1% of all refunds. Sars does though, recognise that the delay for a taxpayer can have serious implications, however Sars must at all times balance risk with service and in the process some taxpayers may be impacted.

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