Tax Talk

When is your VAT refund due? In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

LAST time we looked at VAT refunds in general and I commented on the current application of the provisions of the VAT Act that deal with VAT refunds. This aspect requires further comment because the current practice that is applied seems to me to be very unfair.I indicated in the article that there is a period within which the refund should be made.The time limit indicated in the last article was taken out of the original VAT Act which has subsequently been amended.Despite the amendment which provides that the refund must be made within two months after the refund becomes due, the practice that the Receiver of Revenue applies is that they have an unlimited period to satisfy themselves that the taxpayer is entitled to the refund.This could never have been the intention when the legislation was drafted.In addition to this, the legislation certainly does not give the Receiver of Revenue carte blanche in respect of the period to verify the authenticity of the refund.Some taxpayers have submitted fraudulent VAT refund claims and the Receiver of Revenue was forced to implement unusual measures to ensure that VAT refund claims were valid.The execution of these measures has resulted in a significant delay of VAT refunds.All VAT refund claims in excess of N$15 000 are subject to an audit irrespective of the reason for the refund.There are so many audits that must be carried out and therefore a backlog exists.Section 39 of the VAT Act provides that no interest will be paid where a taxpayer is in default with the submission of his VAT returns.The section furthermore provides that the interest must be calculated from the “due date for payment so prescribed to the date of payment of such refund.”Section 38(2)(b) of the VAT Act provides that the credit balance remaining after set off of other taxes must be made not “later than the end of the second calendar month following the date the credit balance arose”.The section furthermore provides that where the VAT return indicates that a refund is due the return itself constitutes a claim for a refund.This must imply that this is the date the refund arises and cannot be interpreted that the refund only arises when the Receiver has completed the verification of the refund.The verification process merely confirms that the taxpayer is entitled to the refund.The current practice applied by the Receiver of Revenue is that due date for the refund is once they have completed the audit and verified that the refund is in fact due to the taxpayer.For some taxpayers this may take a month and for others it may take 6 months.The date the interest kicks in cannot be reliant on the period the Receiver of Revenue requires to become satisfied that the taxpayer is entitled to the refund.There are many factors which may influence the time it takes to conduct an audit and the date from which interest accumulates should be fixed i.e.two months after the due date for submission of the return.The VAT Act should not be seen by investors as a burden to do business.The uncertainty of how long it takes to be paid a VAT refund is assisting in the down rating of Namibia’s investment ranking by the international investment community.All of us must take note of how the international community looks at us and we should not be doing things that cause investors to frown upon our normal practices.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comThis aspect requires further comment because the current practice that is applied seems to me to be very unfair.I indicated in the article that there is a period within which the refund should be made.The time limit indicated in the last article was taken out of the original VAT Act which has subsequently been amended.Despite the amendment which provides that the refund must be made within two months after the refund becomes due, the practice that the Receiver of Revenue applies is that they have an unlimited period to satisfy themselves that the taxpayer is entitled to the refund.This could never have been the intention when the legislation was drafted.In addition to this, the legislation certainly does not give the Receiver of Revenue carte blanche in respect of the period to verify the authenticity of the refund.Some taxpayers have submitted fraudulent VAT refund claims and the Receiver of Revenue was forced to implement unusual measures to ensure that VAT refund claims were valid.The execution of these measures has resulted in a significant delay of VAT refunds.All VAT refund claims in excess of N$15 000 are subject to an audit irrespective of the reason for the refund.There are so many audits that must be carried out and therefore a backlog exists. Section 39 of the VAT Act provides that no interest will be paid where a taxpayer is in default with the submission of his VAT returns.The section furthermore provides that the interest must be calculated from the “due date for payment so prescribed to the date of payment of such refund.”Section 38(2)(b) of the VAT Act provides that the credit balance remaining after set off of other taxes must be made not “later than the end of the second calendar month following the date the credit balance arose”.The section furthermore provides that where the VAT return indicates that a refund is due the return itself constitutes a claim for a refund.This must imply that this is the date the refund arises and cannot be interpreted that the refund only arises when the Receiver has completed the verification of the refund.The verification process merely confirms that the taxpayer is entitled to the refund.The current practice applied by the Receiver of Revenue is that due date for the refund is once they have completed the audit and verified that the refund is in fact due to the taxpayer.For some taxpayers this may take a month and for others it may take 6 months.The date the interest kicks in cannot be reliant on the period the Receiver of Revenue requires to become satisfied that the taxpayer is entitled to the refund.There are many factors which may influence the time it takes to conduct an audit and the date from which interest accumulates should be fixed i.e.two months after the due date for submission of the return.The VAT Act should not be seen by investors as a burden to do business.The uncertainty of how long it takes to be paid a VAT refund is assisting in the down rating of Namibia’s investment ranking by the international investment community.All of us must take note of how the international community looks at us and we should not be doing things that cause investors to frown upon our normal practices.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com