Compliance is ordinarily understood to mean “to comply with something”. From a Value-added tax (“VAT”) perspective the requisite compliance comes in many forms. VAT compliance must form a critical component of every registered VAT vendor’s business objectives and internal processes.
Compliance ranges from obtaining and retaining required supporting documentation, submitting VAT returns timeously, and making payments on time to responding to SARS queries and requests timeously and effectively. Non-compliance could result in severe penalties (such as 10% late payment penalties and a range of understatement penalties) and interest, especially where the vendor has failed to provide additional information or supporting documentation requested by SARS and SARS then raises additional assessments or even estimated assessments.
Vendors are especially required to be vigilant when VAT refunds are due by SARS, where SARS would typically issue a letter requesting verification of the relevant VAT return. SARS normally affords 21 days (calendar days) for a vendor to submit supporting documentation or relevant material to substantiate the refund. Vendors often neglect to attend to these requests and then struggle to eventually receive these refunds.
Section 55 of the Value-Added Tax Act No. 89 of 1991 (“the VAT Act”) read with Part A of Chapter 4 of the Tax Administration Act No. 28 of 2011 (“the TAA”) specifically stipulates what records a vendor must keep (and for how long) in order to substantiate their relevant VAT position. The VAT Act also specifically sets out under sections 11(3), 16 and 20 read with various Interpretation Notes such as No. 30, 31 and 92 the relevant supporting documents required to be obtained and held by a vendor to support for example the zero-rating of its supplies, an input tax deduction claimed etc. The period for keeping of the records is usually 5 years from the tax period to which it pertains.
Where vendors are confronted by compliance-related issues, it is advisable to consult with a tax specialist who would be able to guide them through the relevant issues or even be able to attend to the compliance on the vendors’ behalf. Compliance plays a pivotal role in ensuring that vendors do not unnecessarily become involved in SARS disputes, and where they do, that the processes followed by the vendor would assist in resolving the disputes successfully (i.e. providing evidence of compliance).