And understand the correct procedures should a dispute with Sars arise.
Taxpayers are advised to deal with estimated assessments before they become additional assessments. Picture: AdobeStock
The South African Revenue Service (Sars) was granted additional powers to implement the estimated assessment functionality where value-added tax (Vat) vendors do not adhere to the provisions of the Tax Administration Act.
As a result, there has been a significant increase over the past two years in Vat estimated assessments where taxpayers have failed to submit returns, provided inadequate information, or failed to adequately respond to requests for relevant material.
According to Ayanda Masina, indirect tax manager at Deloitte Africa, it is important to respond timeously when confronted with an estimated assessment.
“It is crucial to keep meticulous records of transactions included in the Vat return and to confirm that information and documentation requests from Sars are fully responded to.”
It may be prudent to request reasons for an assessment issued or to follow up with Sars on all correspondence submitted, Masina advises in a statement.
Her advice follows recent concerns expressed by Nico Theron, founder of Unicus Tax Specialists, about the potential abuse of estimated assessments where they are issued as a “cash-cow-grabbing norm” instead of being used as a last resort for non-compliant taxpayers.
Theron questioned how many estimated assessments are being raised not as a last resort to protect the fiscus, but because it is effective and convenient to do so.
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Types of assessments
Masina says most taxpayers may not know that there are four types of assessments for tax, namely:
- Original assessments
- Additional assessments
- Reduced assessments, and
- Jeopardy assessments.
All of these can be based on an estimate.
“Estimated assessments, like additional assessments, are pivotal in the administration of Vat,” she adds.
Theron says there is a need for the provision that allows Sars to issue estimated assessments (Section 95 of the Tax Administration Act).
“It is not inconceivable that a taxpayer may obstruct an auditor from timeously raising an assessment by providing incorrect or inadequate information.”
Masina says taxpayers need to understand the procedure when dealing with estimated assessments before they become additional assessments.
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Equally important is to follow the correct procedure when disputes arise.
As with additional assessments, the obligation to provide information requested by Sars remains in the case of a Vat estimated assessment. The taxpayer may request Sars to suspend payment until the issue is resolved. Sars must, upon request from the taxpayer, provide the reasons or grounds for the assessment.
“However, unlike an additional assessment which is subject to objection and appeal once issued, an estimated assessment is only subject to objection and appeal if Sars decides not to make a reduced or additional assessment after the taxpayer submits the return or accurate and relevant material.”
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Reduced or adjusted estimates
Taxpayers can request Sars to reduce or adjust the estimated assessment before the assessment becomes final.
They must submit the relevant or correct information requested by Sars within 40 business days from the date of the estimated assessment. They can also request a longer period beyond the 40 days.
Masina says Sars can issue an additional assessment reducing or adjusting the estimated assessment and, where the taxpayer is satisfied with the outcome, the additional assessment will stand.
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Dispute resolution
Sars can also decide not to revise the estimated assessment, and the decision will serve as the date of the additional assessment.
This sets the normal dispute resolution process in motion, allowing the taxpayer to object against the assessment.
“Although this process seems straightforward, the reality is that the communication between Sars and taxpayers does not always yield the desired results because the set rules are not followed,” Masina warns.
Theron notes that estimated assessments should only be raised as a last resort and not simply if the taxpayer failed to file a return, failed to respond to multiple requests, or submits information or a return that is inadequate or incorrect.
The fact that a taxpayer does not respond to multiple requests for relevant material does not mean the assessment is only possible by way of a guess.
“Sars has far-reaching powers to get accurate and adequate information elsewhere which it might need to raise an accurate assessment,” says Theron.
This article was republished from Moneyweb. Read the original here.
