On Friday, the Nugent Commission heard details of how the South African Revenue Services (Sars) frustrated taxpayers by arbitrarily delaying tax refunds particularly during the months preceding the end of the tax year in what could be read as an attempt to raise tax collection figures.
The commission headed by retired Judge Nugent is looking into tax administration and governance issues at Sars.
In his testimony, Eric Mkhawane, the chief executive at the Tax Ombudsman, said a report by their office looking into complaints about delays in taxpayer refunds revealed numerous cases where Sars was withholding tax refunds pending bank account verifications — despite a taxpayer having used the same account for years.
In some instances where businesses who had paid more in tax or mistakenly made double payments, instead of repaying the money to the taxpayer, Sars would raise an assessment to the exact amount that the taxpayer was supposed to be refunded. Or even using the filing of new returns as a reason to stop paying verified refunds for the previous tax period.
According to Mkhawane Sars was aware of the matter, particularly delays of value-added tax (VAT) refunds, after a periodical report was issued to the now suspended commissioner Tom Moyane, as well as raised the Ombuds annual reports to the minister since 2014.
Speaking from a graph analysing the values of refunds that Sars had paid out over the years Mkhawane said there was a pattern of a decrease in the amounts paid to taxpayers in the months preceding the end of the tax year.
“In April 2016 there was about R12.99-billion paid out, in May you find just over R14-billion in tax refunds … it will go up around July, August, September, coming down in November and December. But what we pick up for 2016 in February and March the amounts would be much lower, so it was R11.6-billion paid February and R11.65-billion in March”.
“February and March are always below the average and then we see it increase in April and May,” said Mkhawane.
Mkhawane said the cases where Sars had placed unwarranted special stoppages on tax refunds were “causing a lot of inconveniences for taxpayers”. He said taxpayers who lived far from Sars branches would have to take time off work and travel long distances to verify their banking details if they were “lucky enough to be served”.
Mkhawane said even after completing the relevant verifications, two months or three months would elapse and the refund would still not be released.
“We can understand that in some instances Sars needs to make sure that the refund is legitimate and being paid to the right taxpayer. But once the taxpayer has complied with all of Sars’s enquiries there’s really no legal basis for withholding the refunds,” said Mkhawane.
In a sample analysis of the cases of refunds withheld by Sars Mkhawane said they found that the value of the top 630 cases was over R25-billion. “What we found for all those cases is they were delayed [to be refunded] over 60 days. The question may be why were they withheld.”
Narcizio Makwakwa — recently appointed as acting group executive for relationship management after his incumbent Mark Kingon was appointed as the acting commissioner — said that since the decentralisation of Sar’s Large Business Centre (LBC) they found it difficult to service some of their clients.
The relationship management unit deals with Sars’s big clients. The LBC and other key units were disbanded after Moyane introduced a new operating model in 2015.
Makwakwa used an example of a recent issue escalated to him from one of their big corporate clients for diesel refunds of approximately R2-billion because they didn’t know who to go to.
“You ask me where my refund is and where is the problem, I can’t tell you but in the past, those guys would have been sitting with the relationship manager, the excise auditors, [the] account management people and the guys who raised assessments,” said Makwakwa.
“This is an issue that will be expensive to the taxpayer but because of the fragmentation and the movement of skills from the LBC the matter is not finalised and you have a great difficulty when you have to explain to the taxpayer why your matter is not refunded.”
Sars is currently working to re-establish the LBC for large business and high net worth individuals.