When the South African Revenue Service (SARS) delays your VAT refund, interest may be payable, but you should not assume that they will calculate and pay that interest automatically.

Nico Theron, founder of Unicus Tax Specialists SA, says that in a recent case involving one of their clients, a taxpayer recovered R2,847,608.45 in interest after SARS initially failed to reflect any interest on a delayed VAT refund. 

“Many taxpayers believe the issue is resolved once the refund is finally released,” Theron adds. “That is not necessarily the case. A delayed refund should always prompt a follow-up question. Did SARS also pay the interest due?”

VAT verification does not remove interest entitlement

VAT refunds are frequently selected for verification by SARS, which can result in delays. However, such delays do not remove the time value of money. In terms of the VAT Act, SARS may be required to pay interest where a refund is not processed within the prescribed timeframe, subject to certain exceptions. 

These may include defective or incomplete returns, outstanding submissions, banking detail issues, or circumstances where SARS is unable to complete its verification.

Input tax dispute and missed interest calculation

In this case, SARS initially reversed a substantial input tax claim, effectively eliminating the taxpayer’s refund. Unicus Tax Specialists SA successfully challenged this position, resulting in the refund being reinstated. However, the taxpayer’s statement of account still did not reflect any interest on the delayed payment.

The matter was pursued over several months through repeated engagements with SARS. This included lodging a complaint with SARS Complaints Management Office, escalating the matter to the Office of the Tax Ombud, requesting SARS interest calculations, and initiating further formal legal steps when the interest remained unpaid or incorrectly calculated.

Despite the eventual payout, the concern remains,  says Theron. “If the taxpayer had not queried the omission, requested the calculation, and challenged SARS position, a substantial amount of statutory interest may never have been paid.”

Taxpayers urged to check statements carefully

Theron notes that many taxpayers focus solely on securing the release of a delayed refund, particularly where cash flow pressures are involved. However, this approach may result in additional amounts being overlooked.

“In practice, VAT vendors should review their statements of account once a delayed refund is paid,” he advises. “They should confirm whether interest has been calculated, whether the correct period has been applied, and whether SARS has relied on any statutory exception to reduce or avoid paying interest.”

“Interest on delayed VAT refunds is not discretionary,” Theron adds. “Where the legal requirements are met, it forms part of the taxpayer’s entitlement. But that entitlement must be understood and where necessary enforced.”