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Executive Summary

The South African Revenue Service (SARS) recently implemented a new estimated assessment functionality for value-added tax (VAT). Although SARS has long had the authority under the Tax Administrative Act to issue estimated tax assessments, this latest development specifically focuses on VAT assessments in instances where vendors fail to respond to multiple requests for relevant material. Taxpayers must be cognizant of these changes, as the options available for disputing these assessments are limited.

The process

The process leading to an estimated assessment of VAT may involve the following steps.

1. Submission of VAT return:
   
   The process is initiated when a vendor files its VAT return.

2. Request from SARS to provide relevant material:
   
   SARS notifies vendors to provide specific information for the verification of the VAT return, typically within 21 business days. The notice must specify the relevant material that SARS is seeking.

3. Reminder to provide relevant material:
   
   If a vendor does not comply within the specified period, SARS issues a reminder and typically allows an additional 21 business days for the submission of the required information.

4. Extension application:
   
   Vendors facing challenges in meeting the deadlines may apply to SARS for an extension. The vendor must show reasonable grounds for the request.

5. Estimated assessment:
   
   If a vendor fails to furnish the necessary information, SARS may proceed to make an estimated assessment after the expiration of the period within which the information should have been provided.

6. Disputing the estimated assessment:
   
   A vendor's only recourse against an estimated assessment issued on the basis that no information was provided to SARS is to submit the relevant material within 40 business days from the date of the estimated assessment. The Tax Administration Act is not clear on this, but according to SARS a vendor may submit a request for suspension of payment. If this is not done, or if the request is denied, the amount of the estimated assessment is payable on the due date as per the estimated assessment regardless of whether the relevant material is submitted.

7. Extension request:
   
   A vendor that is unable to meet the 40-business-day deadline may request an extension by submitting reasonable grounds to SARS. SARS will not extend this period by more than five years.

8. Objection to estimated assessment:
   
   A vendor may only object to an estimated assessment that was issued on the basis that no information was provided to SARS if the relevant material is provided within the stipulated 40-business-day (or extended) period and SARS decides not to issue a reduced or additional assessment. If that is the case, the date of the written notice of such decision by SARS becomes the assessment date for dispute resolution purposes. A vendor may then file an objection within 80 days from the date of this notice. In instances where a vendor provided the required information to SARS and SARS raised an estimated assessment on the basis that the information submitted was inadequate or incorrect, the estimated assessment may be objected to within 80 business days of the date of the assessment.

Implications for taxpayers

Taxpayers must ensure that they respond to SARS's requests for information to verify a VAT return promptly and accurately to avoid estimated assessments. The process outlined above underscores the importance of complying within specified time frames. The limited options for disputing estimated assessments necessitate a proactive approach.

Categories of additional information that SARS seems to be requesting more often now than in the past to verify a VAT return include:

• A detailed explanation of the nature of business, including terms of payment arrangements with customers and suppliers and financing arrangements
• Output tax and Input tax VAT Control accounts/schedules
• Top five tax invoices deducted, measured in South African rands
• Top five tax invoices issued, measured in South African rands
• Details relating to zero-rated supplies
• Latest trail balance
• Lease agreement and landlord contact details/proof of ownership of premises
• Municipal utility account in vendor's name
• Current period debtors and creditors ledgers or accounts
• Specific information relating to goods purchased or sold that are subject to the domestic reverse charge on gold

If the above information is not provided within the allowed time periods, SARS could make an estimated assessment by, for example, disallowing input tax deductions or assessing supplies that a vendor declared as zero-rated as being standard rated.

SARS's introduction of the estimated assessment functionality for VAT may have detrimental consequences for a taxpayer who does not pay careful attention to SARS's requests for information relating to its VAT returns. Taxpayers should be well informed about the newly implemented process and take appropriate measures to ensure timely compliance, thereby mitigating the risk of having to challenge an estimated assessment.