It cannot automatically be assumed that value added tax (VAT) refunds may always be claimed within five years of the end of a relevant tax period.
Refunds to vendors are governed by Section 44 of the Value Added Tax Act (89/1991). However, a distinction is drawn between refunds in terms of Section 44(1) and Section 44(2) of the act. Section 44(1) caters for a refund where an amount is refundable to a vendor under Section 16(5) of the act – that is, where the aggregate amount of input tax credits exceeds the output tax charged by the vendor in making taxable supplies in a particular tax period. In contrast, Section 44(2), read with Section 44(3) of the act, caters for a refund where a vendor has paid an amount of tax, additional tax, penalty or interest in excess of that which should properly have been charged in terms of the act.
This update deals with the instances in which a vendor can claim VAT refunds over a period of five years and when it will be allowed to claim only for a period of six months in terms of Section 44(2) of the act. Sections 44(2) and 44(3) contain the additional proviso that the commissioner shall not make the refund unless:
"the claim for the refund of such excess amount of tax, additional tax, penalty or interest is received by the Commissioner within five years after the date upon which payment of the amount claimed to be refundable was made: Provided that if the Commissioner is satisfied that such payment was made in accordance with the practice generally prevailing at the said date, no refund shall be made unless the claim for any refund is received by the Commissioner within six months after that date."
Therefore, it follows that the determination of the period within which a vendor would be entitled to claim a VAT refund under Section 44(2) (ie, within five years or six months) depends on whether the payment was made to the South African Revenue Service (SARS) in accordance with a "practice generally prevailing at the said date".
These provisions were discussed in Weare v the Commissioner for SARS (2005 (4) 488 SCA). Michael Weare was a bookmaker. During the tax periods from September 1991 and July 1996, Weare alleged that he had overpaid an amount of VAT to the commissioner and claimed a refund of approximately R1.4 million, covering a period of five years. SARS was of the view that the vendor was entitled only to refunds covering a period of six months, because payment was made as according to a practice generally prevailing at the time.
Based on the evidence, SARS accepted that bookmakers' winnings on take-back bets were subject to output tax. This was consistent with the scheme of the act and was reflected in both editions of the VAT Guide. At the time, there was a lacuna in the act which allowed for every bookmaker in the country to seek a refund of overpayment. The issue to be decided was the period over which Weare was entitled to a refund. The court found that the overpayment made by Weare was based on the belief that the moneys were due to the receiver as per the situation generally prevailing at the time, and therefore found that Weare was entitled to a refund for a period of only six months, and not five years.
Therefore, when claiming a refund in terms of Section 44(2) of the act, vendors must be mindful of the additional proviso on the period within which to claim a refund where the refund arose from a practice generally prevailing at the time.
For further information on this topic please contact Tayob Kamdar or Corne Lewis at Cliffe Dekker Hofmeyr Inc by telephone (+27 11 290 7000), fax (+27 11 290 7300) or email ([email protected] or [email protected]).