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Decoding VAT-Estimated Assessments

Jan 4, 2024

SARS’ Trailblazing Strategy Unveiled

The VAT-estimated assessment process has been altered by the South African Revenue Service (SARS) due to taxpayers ignoring requests for supporting material.

Taxpayers who fail to respond to requests for supporting material for their value-added tax (VAT) returns will now face a significant change in the assessment process. The South African Revenue Service (SARS) has announced that it will issue estimated assessments for those who do not respond promptly. This means that taxpayers who neglect requests for relevant information will receive an estimated assessment from SARS.

Once the estimated assessment has been issued, the VAT vendor can no longer request a correction for the same period. Typically, a VAT vendor has five years to submit a request.

The implementation of estimated VAT assessments when taxpayers fail to respond to a request for relevant material on time should not come as a surprise. SARS has had the power to do so since introducing the Tax Administration Act (TAA) in 2011. Although SARS has had the authority, it previously lacked the functionality. However, it is now able to issue estimated assessments.

What happens when you disagree with the VAT-estimated assessment?

Vendors who disagree with the estimated assessment must provide supporting documents within 40 business days of receiving the notice. If they cannot submit the documents on time, they may request an extension, but only in certain circumstances. After submitting their tax return and receiving a verification letter, taxpayers usually have 21 days to submit the requested documents. If they miss this deadline, SARS will automatically issue an estimated assessment based on input taxes. The deadline for submitting supporting documents is 40 business days unless granted an extension.

The estimated assessment will be based on the writing back of input taxes. Although the process may differ, the outcome should be the same. This means that there is an interim phase before entering the dispute phase.

Objections and appeal for VAT-Estimated Assessments

The taxpayer in question has received a notice from SARS regarding an estimated assessment. However, the notice may be misleading as it states that the vendor will not be allowed to submit a notice of objection as an estimated assessment issued in terms of the TAA is not subject to dispute. This may not be entirely correct.

SARS may issue an estimated assessment if they have not been provided with the relevant information from the taxpayer. However, it is essential to note that the act only states that the assessment will not be subject to objection or appeal if SARS and the taxpayer agree to a payable amount in writing.

If the vendor provides the supporting documents to SARS and the assessment is not revised, the taxpayer is entitled to object. However, SARS’ communication regarding this matter is not entirely clear, which may confuse the taxpayer.

VAT-estimated assessments timelines

Taxpayers must adhere to the timelines stipulated in the South African Revenue Service (SARS) correspondence. If relevant documents cannot be submitted within 40 business days, taxpayers are advised to request an extension and suspension of payment.

It is crucial to be vigilant of the timelines during extended holiday periods, such as Christmas, as the 40 business days generally exclude mid-December to mid-January. However, taxpayers should not consider this period as a “safe period.” It is imperative to continually monitor any eFiling notifications. This amendment emphasises the significance of timely compliance, as it will significantly impact the management of Value-Added Tax (VAT) submissions and assessments by vendors.

Upon receipt of the verification letter, it is imperative to respond to SARS promptly. Sufficient information must be provided to enable SARS to make an informed decision. Ignoring correspondence from SARS is not advisable.

Increased compliance

The current provisions are now in effect and are designed to balance the interests of taxpayers and the South African Revenue Service (SARS). Despite the estimated assessment process being available for an extended period, SARS has opted to enforce it due to frustrations caused by taxpayers failing to respond promptly to requests for information. By providing the necessary information promptly, taxpayers can prevent a prolonged process of requests for reduced assessments, objections, and appeals.

This move is part of SARS’ broader effort to increase compliance. Non-compliance with submission deadlines and delayed receipt of verification material are among their significant challenges. SARS aims to resolve tax matters expeditiously within a specific timeframe and move on to other pressing issues.

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