Your VAT refund may not be the full amount owed to you by SARS

When the South African Revenue Service (SARS) delays your VAT refund, interest may become payable, but you should not assume that they will automatically calculate and pay that interest.

Nico Theron, founder of Unicus Tax Specialist SA, says that in a recent case involving one of his clients, a taxpayer recovered R2,847,608.45 in interest after SARS initially failed to reflect any interest on a delayed VAT refund.

“Many taxpayers believe the problem will be resolved once refunds are eventually issued,” Theron says. “This is not necessarily the case. A follow-up question should always be asked of a delayed refund. Has SARS also paid the interest due?”

VAT verification does not remove interest entitlement

VAT refunds are often held up for verification by SARS, which can result in delays. However, such delay does not reduce the time value of money. In terms of the VAT Act, SARS may require interest to be paid where a refund is not processed within the prescribed time limit, subject to certain exceptions.

These may include faulty or incomplete returns, outstanding submissions, banking statement issues, or situations where SARS is unable to complete its verification.

Input Tax Dispute and Discounted Interest Calculation

In this case, SARS initially reversed a large input tax claim, effectively voiding the taxpayer's refund. Unicus Tax Specialists SA successfully challenged this situation, resulting in the refund being reinstated. However, the taxpayer's statement of account still does not reflect any interest on delayed payment.

The case was pursued over several months through repeated negotiations with SARS. This included filing a complaint with the SARS Complaint Management Office, taking the matter to the Tax Ombudsman Office, requesting a SARS interest calculation and taking further formal legal steps if interest was not paid or was incorrectly calculated.

Theron says concerns remain despite the final payment. “Had the taxpayer not questioned the omission, requested a calculation, and not challenged the SARS position, a substantial amount of statutory interest would never have been paid.”

Taxpayers urged to check details carefully

Theron says many taxpayers focus only on issuing delayed refunds, especially where cash flow pressures are involved. However, this approach may result in overlooking additional quantities.

“In practice, VAT vendors should review their account statements after paying a delayed refund,” he advises. “They should confirm whether interest has been calculated, whether the correct period has been applied, and whether SARS has relied on any statutory exceptions to reduce interest or avoid payment.”

“Interest on delayed VAT refunds is not discretionary,” says Theron. “Where legal requirements are met, it forms part of the taxpayer's right. But that right must be understood and enforced where necessary.”