Value-added Tax
1709. Registration procedures amended again
February 2009 – Issue 114

In response to a study that showed that VAT compliance is one of the highest costs to businesses and that the VAT registration process is particularly onerous, SARS introduced simplified registration procedures for VAT registration with effect from 1 February 2008. The volume of supporting documentation that was required for VAT registration was significantly reduced. SARS then processed all VAT registrations which were submitted in person to a SARS official at a branch office immediately, which meant that one was able to obtain a VAT registration number on the same day on which the VAT registration application form and required documentation was submitted. SARS then revised the registration process from 1 April 2008, and expanded on the information and documentation required to register, but still issued the VAT number the same day.

SARS has now revised the VAT registration procedures yet again. In a notice to Tax Practitioners in November 2008 SARS states that more stringent verification of applications for VAT registration has been introduced as a result of attempted fraudulent registrations and other attempts to defraud the VAT system. Apparently SARS has identified that there is an increase in registered vendors with a turnover of less than the minimum registration threshold of R20 000 per annum, and that SARS is experiencing an increase in registrations by small businesses with zero or very low turnover. In conducting follow-up verifications, SARS often finds that many VAT vendors cannot be traced using the contact details supplied on the VAT registration form and their business premises are fake or occupied by different businesses.

In an attempt to prevent fraudulent registrations the new measures include the following additional registration checks:

· Applications for VAT registration must now be submitted in person by a vendor or by a duly authorised and registered practitioner;

· Applications must be accompanied by proof of identity, the bank particulars and proof of the physical address of the business.

The SARS notice further states that where applicants are unable to visit a SARS branch to apply in person or to send a legal representative, applications may be done via post but it will require additional verification measures before activation. However, a revised VAT registration form released by SARS indicates that only applications submitted in person by the individual, partner, representative vendor or registered tax practitioner will be considered. It is therefore uncertain at this stage whether applications by post will indeed be processed by SARS, and if so, what the additional verification procedures are which will be applied.

The new VAT registration form requires that the following documents must be submitted in addition to the certified copies of identity documents, banking details and constitutional documentation that are currently required:

· If the registration application is submitted by a registered tax practitioner, the application must be accompanied by a letter of authority;

· A copy of the municipal account of the enterprise;

· Copies of the last three months’ bank statements or the financial information on which the turnover is based for purpose of the VAT registration.

The new measures introduced by SARS are causing substantial delays in the VAT registrations of businesses in general, but for non-residents in particular. It also increases the cost of registering for VAT significantly. Many non-residents that are obliged to register for VAT do not have fixed places of business in South Africa. Start-up businesses may further not yet have established business premises and where group companies have shared services functions, a new company in the group may not be able to produce municipal accounts in its own name.

The expected delays in obtaining VAT registration numbers severely impacts on the trading activities of businesses from their commencement date to the date a VAT registration number is eventually issued, because they are not able to issue tax invoices to their customers and are unable to claim VAT. New businesses, and particularly new companies formed as a result of mergers, reorganisations or acquisitions of new businesses should therefore commence with their VAT registration processes as soon as is practically possible.

Due to the fact that SARS now views vendors with a low turnover or zero revenue with extreme suspicion, entities carrying on activities such as plantation, construction or exploration activities where they incur costs but only expect to generate taxable revenue at some future date, can expect to face some tough questions by SARS with regard to their entitlement to be registered for VAT.

The fraud that SARS seeks to combat with the new measures relates to the claiming of fraudulent VAT refund claims. It will therefore make more sense for SARS officials to focus their attention on the verification of VAT refund claims as opposed to the VAT registration process.

Edward Nathan Sonnenbergs

VAT Act:S 23