After publishing an article about increased tax audits and delays in refunds by SARS, and telling the story of a taxpayer who was hounded by SARS for 49c, City Press was inundated by responses from readers adding to the complaints against SARS.
These complaints included a lack of response from SARS on queries, payment demands despite documents being submitted, a delay in refund payments, and taking up to 90 days to finalise audits.
We sent the list of complaints to SARS for comment and spoke to Mark Kingon, group executive at SARS, to address the issues.
Kingon agrees that SARS can always improve their response rate, but he argues that despite the perception that there has been an increase in audits and a delay in the payment of refunds, the figures show otherwise. Kingon says that to date SARS has paid out more than R2bn more in personal income tax refunds than they had by this time last year, and that less than 22% of personal income 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.
No automatic flagging of returns
Kingon says there is no system within SARS that automatically flags a return for audit if a refund is due, however, SARS is continually updating and adjusting its risk assessments in order to identify fraud and 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, how do we tighten our risk process,” says Kingon, who adds that SARS is like one giant bank which pays out billions in refunds, making it vulnerable to fraud. “Currently one of our specific teams is stopping around 300 cases a day for investigation, in addition to standard risk processes where taxpayers are blatantly trying to defraud the fiscus with fraudulent deduction claims for items such as medical, retirement annuities etc.”
“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.”
It seems that retirement annuity (RA) contributions and medical expenses are coming under specific scrutiny at SARS. Carry-over in terms of RA contributions requires verification,and has received specific focus due to the retirement reforms where individuals can now contribute up to 27.5% of their income to a retirement fund and obtain a tax deduction. Previously this allowance was 15%. If in the previous year an individual contributed more than 15% to their retirement annuity 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 in this area and will inevitably require additional documentation.
Kingon maintains that if people are receiving refunds and being audited, this is more a co-incidence than a strategy. “People perceive that we artificially withhold refunds. I doubt anyone is purposely withholding refunds ‒ we don’t want that extra work. We have enough on our plate,” says Kingon, who adds that good risk management would require a taxpayer to be automatically audited every three years, but that SARS simply does not have the capacity to audit that frequently. Currently they identify certain risk areas and do random audits to prevent people from working out which risk processes SARS uses.
“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.
Why the increase in complaints?
So if, according to Kingon, SARS is not actually increasing their number of audits and are paying out more refunds, then why are so many complaints being made?
This could partly be attributed to a recent major PR disaster when many people received SMSes telling them that they owed money to SARS even though they did not. Some of the complaints to City Press related to this event. SARS issued a public apology and follow-up SMSes, and Kingon says the technical glitch has been resolved.
He adds that many of the complaints we sent through appeared to be due to a lack of understanding around how the process works. For example, people don’t always understand what is allowed in terms of a tax deduction. “We get people claiming their church tithe as a donation, but only donations to registered public benefit organisations qualify for tax deductions.” This can also be an area of fraud, with bogus institutions created for purposes of donations and SARS requires verification of these documents.
Kingon says that progress has been made with resolving matters raised by the Tax Ombud after the Ombud assessed complaints it had received.
Two types of audits
When it comes to an ‘audit’, there are two types. The first is a document review or verification, where SARS will ask you to submit all your 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. Generally, such reviews take fewer than 21 business days from the receipt of the required documents.
Once you have submitted your documents, either your assessment will be finalised and any refund paid, or in a limited number of cases where a specific risk is identified, the cases are routed for a formal audit.
In these cases, SARS has up to 90 working days (around four months) to conduct this audit. If the process takes longer, the taxpayer has to be formally notified.
Once the refund is approved, SARS will check if there are any outstanding tax returns for other tax years – this seemed to be an issue with some of our reader complaints. Kingon says that if a taxpayer has an outstanding return from any other period, the refund will not be paid. If you have a debt owing on any other type of tax, such as VAT for example, debt equalisation is applied and that debt will be offset before the refund is issued – again creating a delay.
And 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 in order to receive their refunds. This is also important in that some banks do 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 that SARS needs to improve on. “It is a priority to improve the process because we would like to streamline the verification process and have fewer people coming into branches.”
Kingon adds that another frustration for taxpayers is the limited capacity for documents to be submitted online, as the site only provides for 20 documents of 2MB each. Kingon says SARS is looking to increase that to 5MB, however taxpayers need to ensure that when they scan documents they use a lower resolution in order to reduce the size of the documents to be uploaded.
What to do if you are unhappy with SARS
Firstly, you need to understand what is happening to your assessment in terms of the ordinary process and comply with all document requests as quickly as possible. You can do this by contacting the call centre or going to a SARS branch.
Secondly, if you are unhappy with your assessment, you do have a right to object to the assessment. This can be done on efiling or at a SARS branch. Very importantly this must be done within 30 business days of the assessment.
If you have an objection or complaint, you can follow this up with the call centre. If you feel that you don’t get a reasonable response or they take too long to respond, you can then lodge a complaint on the efiling website or at a branch. SARS also has a complaints office that can be contacted at 0860 12 12 16.
“We have a team that deals with service issues or abuse. They will escalate the issue if required,” says Kingon. If you still get no joy, then you have the right to take your complaint to the Tax Ombud.
This article first appeared in City Press.