1741. Delayed and suspended registrations
June 2009 – Issue 118
During November 2008, SARS issued a notice in which it announced a number of important changes to the VAT registration process. SARS introduced stringent verification measures which it claims are necessitated by VAT fraud and invalid refund scams.
A VAT number is therefore no longer allocated on the same day the application is submitted as was the case since February 2008, and the registration process is now delayed by several weeks and even months.The new verification procedures
The application form can now only be submitted in person by either the representative vendor or a duly authorized and registered tax practitioner. Where it is not possible to submit the application form in person at a branch office, the application may be mailed, but mailed applications will require additional verification measures before activation.
SARS issued a new VAT l0le VAT registration form which lists the information and documents required for the VAT registration. These documents are not dissimilar from what was previously required, and includes certified copies of the identity documents or passports of the representative vendor and directors and bank particulars. However, documents substantiating the physical business address of the business, that is, the municipal account or lease are also now required. The last three months’ bank statements must also be submitted or financial information which substantiates the expected value of annual taxable supplies.
Although the registration form requires only the information as listed above, SARS branch offices requires additional information which is not stipulated in the VAT registration form, such as the vendor’s employees’ tax registration number and the income tax reference numbers of directors.
SARS requirements cause substantial delays in the VAT registration process where vendors are not able to provide the required information and increase the cost of registration significantly. Start-up operations may not yet have municipal accounts in their own name, or may not be able to submit bank statements immediately. The same applies to new companies within an existing group of companies that operate from the premises of their fellow subsidiaries, or that uses another group company’s bank account. Foreign directors are not required to register for income tax in South Africa, and are therefore not able to submit income tax registration numbers. Recently, SARS has refused to process a VAT registration application if the personal income tax affairs of any director or the representative vendor is not up to date.
It seems that each SARS branch office has its own list of requirements for VAT registration in addition to what is required by the VAT registration form, and that SARS officials may request any information they may deem necessary for processing the VAT registration applications.
SARS officials may also carry out a physical inspection of the business premises before the registration application is processed.
It is accepted that SARS has a responsibility to protect the fiscus, but SARS can also not simply refuse to register vendors that are obliged to register for VAT in terms of the VAT Act. The personal tax affairs of a director or representative vendor has no bearing on the obligation of a vendor to register for VAT, and should only be considered in exceptional circumstances where it is warranted.
It is questionable as to whether SARS is indeed entitled to refuse to process a VAT registration application if the vendor is obliged to register for VAT, and where all the information as specified in the VAT registration form is submitted.Suspension of VAT numbers
Where the value of taxable supplies of vendors during the year ending 31 December 2008 was below the minimum registration threshold of R20 000, SARS notified them that with effect from 1 January 2009 their VAT registration numbers are suspended. These vendors are further informed that unless they motivate to SARS in person or via a registered tax practitioner why the suspension should not be lifted, their VAT registrations will be cancelled with effect from 1 March 2009. The suspension of the VAT number means that all refund claims will be withheld until SARS lifts the suspension.
The SARS notice also requires that the vendor resubmits documents that have already been submitted at the time of registration. The documents required include a copy of the identity document of the vendor or representative vendor, the banking particulars, a utility account proving the physical business address, the financial records of the vendor and copies of the 10 highest Rand value invoices received.Impact on business
Although it is the duty of SARS to protect the fiscus against unscrupulous vendors claiming fraudulent input tax deductions, the new registration verification procedures and the suspension of VAT numbers negatively impacts on the ability of all vendors to trade within the framework of the VAT Act, and it is uncertain whether it will prevent fraud.
The delay in issuing VAT numbers means that vendors remain liable to account for output tax but they are unable to claim input tax deductions, and may even be held liable for the payment of penalties and interest due to the "late" payment of output tax only when a VAT number is issued. Vendors that are waiting for VAT numbers are not able to issue tax invoices which may result in them having to bear the VAT themselves. An important foundation of the VAT system is that VAT refunds must be timeously paid. The withholding of VAT refunds has a major impact on the ability of vendors to trade.
SARS should rather shift their verification procedures from the registration process to the refund process to ensure that only valid refunds are claimed and more importantly, actually paid out to vendors.
Edward Nathan Sonnenbergs