Tax Ombud puts questionable SARS practices in spotlight

Cape Town – Dispute resolution and delays in refund payments by the South African Revenue Service (SARS) are the two major issues picked up by the Office of the Tax Ombud, its CEO Advocate Eric Mkhawane said on Wednesday.

Speaking to Parliament’s standing committee on finance, Mkhawane said that in some cases his office has had to intervene to save entities in distress. A case in point was a business which was about to close down, because SARS had delayed paying a R10m refund. The Office of the Tax Ombud could intervene and save the business.

Mkhawane said the tax ombud identified a system where SARS would place “stoppers” on a refund, although the taxpayer was entitled to it.

For example, a taxpayer would be told to go to a SARS branch and prove his “existence” and banking details. In some instances, the nearest branch would be 200km away – especially in the Northern Cape. And once he complied, SARS would in some instances still not pay the refund, taking three to four months to pay it out.

When the taxpayer phoned to find out about the payment of the refund, he would simply be told by SARS that there is no turnaround time.

“This cannot be. It should not be allowed,” Mkhawane told the committee.

He said another practice of SARS the tax ombud objected to is blocking the payment of a refund due on a prior tax submission, when a taxpayer files a new tax return.

For instance, a taxpayer would file a return and then - before getting his verified return - submit a new return. SARS would then stop the payment of the first refund.

The same would happen, where SARS verified one refund and audited another period. SARS would then stop the payment of the refund on the verified return.

“We are talking to SARS about this. Legislation does not allow this; it was just a practice it started. We are very concerned about that,” Mkhawane told the committee.

Gert van Heerden, a senior legal manager at the Office of the Tax Ombud, added that these practices by SARS are not exceptions to the rule.

“It is not like somebody decides to stop a refund. The (SARS) system generates it (automatically),” said Van Heerden.

Another practice the tax ombud office is worried about is the way SARS tends to raise “assessments” to offset refunds.

For example, while SARS is collecting from a taxpayer – for instance taking money directly from a bank account - the taxpayer might also have made payment in the meantime.

SARS would then raise an assessment to try and offset the double payment.

“What worried us was that the assessment raised would then be exactly the amount of the double payment. SARS is, therefore, raising a fictitious assessment and not even telling the taxpayer what it is – so not even giving the taxpayer a chance to raise (an) objection,” said Mkhawane.

He said SARS has admitted that this practice is not proper, and said it will stop it.

Other practices by SARS the Office of the Tax Ombud raised include cases where a taxpayer owed SARS money, but did not agree on the amount and lodged an objection, asking SARS to suspend payment until the issue is finalised.

Sometimes SARS would simply not respond to the taxpayer or subsequently, when the taxpayer has a refund, it would equalise and offset that against the debt about which the objection was raised.

The Office of the Tax Ombud is monitoring this kind of practice as, according to Mkhawane, SARS has undertaken to adjust its system.

Another critical issue for the tax ombud is SARS not adhering to dispute resolution timelines. It also happens that SARS mistakenly pays a refund into a wrong account, and then does not remedy the situation, expecting the taxpayer to do so.

Lastly, the Office of the Tax Ombud wants to see SARS adhere to legal procedure before just “dipping into” a taxpayer’s bank account. For instance, SARS is supposed to first send the taxpayer a letter of demand and offer different options for payment.

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