After publishing an article about a taxpayer who was hounded by the SA Revenue Service (Sars) for 49c, as well as about increased tax audits being conducted and delays in refunds, City Press was inundated with SMSes from readers – adding to complaints by the public against Sars.
Gripes included a lack of response from Sars to queries, payment demands despite documents having been submitted, delays in refund payments and Sars taking up to 90 days to finalise audits.
City Press sent the list of complaints to Sars for comment and spoke to group executive Mark Kingon to get answers.
Kingon agrees that Sars can always improve its response rate, but says despite the perception of an increase in audits and a delay in paying refunds, the figures show otherwise.
To date, Sars has paid out R2 billion more in personal income tax refunds compared with this time last year, and less than 21% of tax returns submitted are audited.
This includes returns where taxpayers either owe money to Sars or have a refund due.
Credit returns submitted account for 72% of all returns submitted, and of all credit returns, only 22.8% are alerted for an audit. This implies that 77.2% of all refunds have no audit intervention.
Kingon says there is no system within Sars that automatically flags a return for audit if a refund is due.
However, Sars continuously updates and adjusts its risk assessments to identify fraud and ensure tax compliance.
“Irrespective of what pressure there is to collect tax, it does not affect our processes. We are continuously improving our fraud and risk measures. Every year, we look at what the risks are and how to tighten our risk process.”
Kingon says Sars is like one giant bank which pays out billions of rands in refunds, making it vulnerable to fraud.
“Currently, we have about 300 cases for investigation in addition to standard risk processes where taxpayers blatantly try to defraud the fiscus with fraudulent deduction claims for retirement annuities (RAs) and medical contributions.”
It seems that RA contributions and medical expenses are being scrutinised by Sars.
Carry-over in terms of RA contributions requires verification. Carry-over of retirement contributions have received specific focus because of retirement reforms, whereby individuals can now contribute 27.5% of their salary to a retirement fund and obtain a tax deduction.
This is up from 15% previously.
If, in the previous year, you contributed more than 15% to your RA fund, the carry-over is allowed in the following year in order to benefit fully from the tax deduction.
In the case of medical expenses, Sars experiences a high level of fraud and will inevitably require additional documentation.
Kingon maintains that if people are receiving refunds and being audited, this is more a coincidence than a strategy.
“People perceive that we artificially withhold refunds. I doubt that anyone is purposely withholding refunds. We do not want that extra work; we have enough on our plate.”
Kingon says good risk management will require a taxpayer to be automatically audited every three years, but Sars does not have the capacity to audit that frequently.
Currently, Sars identifies certain risk areas and does random audits to prevent people who may have worked out which risk processes Sars uses from exploiting this.
“We are actually doing less auditing in terms of quantity this year, but we have changed the focus of our audits, which might affect certain taxpayers,” says Kingon.
So, if, according to Kingon, Sars is not increasing the number of its audits and paying out more refunds, why are so many complaints being made?
This could be attributed partly to a major public relations disaster two weeks ago, when a batch of SMSes was sent, telling people they owed Sars money – even though they did not. Some of the complaints to City Press were related to this event.
Sars issued a public apology and follow-up SMSes, and Kingon says the technical glitch has been resolved.
Kingon says many of the complaints people have sent appear to be about how the process works.
For example, people do not always understand what is allowed in terms of a tax deduction.
“We get people claiming their church tithe as a donation. But only registered public benefit organisations qualify for tax deductions.”
This can also be an area of fraud – for example, when bogus institutions are created for the purpose of receiving donations. Sars then requires verification of documents to ensure such institutions are legitimate.
Kingon says progress has been made in resolving matters raised by the Tax Ombud after the latter assessed the complaints received.
When it comes to an audit, there are two types.
The first requires submitting all supporting documents. A taxpayer must submit these within 30 days, or a second and final request will be submitted.
This will be followed by a phone call. Any delay in submitting documents will delay the payment of a refund.
Once documents have been submitted, either the assessment will be finalised and any refund paid, or it will go through a further review process, in which case the documents will be sent for further verification.
By law, Sars has up to 90 working days (four months) to verify these documents and can apply for an extension.
Sars can then require a full audit, although Kingon says this occurs in very few cases and depends on certain risks identified, where possible fraud has been committed.
Once the refund is approved, Sars will check if there are any outstanding tax returns.
This seemed to be an issue with some of our reader complaints.
Kingon says if a taxpayer has an outstanding return from any other period, the refund will not be paid.
If there is debt owing on any other type of tax, such as value-added tax, debt equalisation is applied and that debt will be offset before the refund is issued – again creating a delay.
Finally, before payment can be made, Sars needs to verify the taxpayer’s bank details, as criminal syndicates change the bank details of legitimate taxpayers to receive their refunds.
This is also important as some banks recycle bank account numbers.
If you have not verified your bank details, you may be required to go into a Sars branch to do so.
Kingon acknowledges that this is an area Sars needs to improve on.
“It is a priority to improve the process because we would like to streamline the verification and have fewer people coming to the branch,” he says.
Another frustration for taxpayers is the limited capacity for documents to be submitted online.
The site only provides for 20 documents of 2 megabytes each.
Kingon says Sars is looking to increase that to 5MB.