Tax laws

Ghana: Unilateral tax laws violate taxpayers’ rights to fair administration

Problematic tax legislation is causing irreparable damage to exporters’ cash flow and the local economy, as one-sided anti-taxpayer laws continue to stifle growth and deter foreign investors.

According to Ernest Lai King, managing director of 1Road Consulting and consultant to law firms, deficiencies in the Value Added Tax (VAT) law regarding VAT audits have led to endless withholding of VAT refunds , violating the taxpayers’ constitutional rights to fair administration.

In terms of VAT legislation, exports are zero-rated, which means that exporting companies generally find themselves in a situation of net VAT refund. These VAT refunds are an important factor in the operational cash flows of exporters.

Lai King and various industry representative bodies have expressed concern that SARS is not legally bound to finalize VAT audits by any deadline. This results in interminable delays in the payment of refunds, causing companies significant financial difficulties, including insolvency.

“During the VAT control period, there are no legal deadlines for finalisation. In effect, this means that the taxpayer is often placed in limbo, while all their VAT refunds – current and future – are retained,” he said.

“The VAT law is silent on this issue, and SARS considers it free to pursue a VAT audit for one, two, three or even more years. It cannot be held to any time limit.”

SARS may continually extend the audit scope and periods without limitation, and without discovering concrete evidence of wrongdoing or finalizing the first audit period. And as long as SARS submits successive requests for additional information within 21 days of each other, no interest can accrue on refund amounts owed to the taxpayer.

To make matters worse, no partial refunds are possible during the audit. Unless businesses provide a guarantee or security for 100% of the VAT amount in dispute, they cannot claim any relief from SARS. As a result, business cash flows are severely compromised until insolvency.

SARS also argued that because the VAT refund withholding is an automatic system shutdown rather than a deliberate decision, taxpayers cannot make the withholding decision as a result of judicial review.

A revised VAT assessment is only issued upon finalization of the VAT audit. It is only after the revised VAT assessment has been issued that a formal dispute resolution process can take place, which has a schedule of specified timelines and deadlines.

Until then, however, taxpayers are left completely at the mercy of the SARS audit team — a process that very few companies can survive, notes Lai King.

“Without a formal dispute resolution mechanism, taxpayers have legal recourse during a VAT audit only to the courts. For many businesses, this option is not only financially prohibitive, but also very time-consuming, as the final outcome is only likely after five to six years once all appeal procedures have been completed.

“During Commissioner Moyane’s time, for example, SARS withheld a total of around R20 billion in VAT refunds owed to taxpayers, causing significant harm to businesses.

In a recent ruling from the Gauteng High Court, the court noted that SARS must not be allowed to continue to request information for the purpose of delaying the completion of VAT audits. Additionally, the court pointed out that SARS cannot be given an indefinite amount of time to complete audits and that all audits must be completed within a reasonable timeframe.

But while the seriousness of these problems has been acknowledged by the tax ombud, the Nugent Commission, senior SARS officials and the former finance minister, there is still no cure.

This has significant implications for South Africa’s investment attractiveness and global competitiveness, limiting the growth of the export industry, warns Lai King.

“The export industry is crucial to supporting the local currency, generating income and creating jobs. Foreign direct investors have specifically raised this concern as a basis for neglecting South Africa and building businesses and creating jobs elsewhere. in Africa,” he said.

“No one is remotely suggesting that SARS cannot audit. Their right to audit is indisputable.

“Under the Constitution, however, every South African is entitled to reasonable and procedurally fair administrative action. Yet the structure of our tax laws allows SARS to act as judge, jury and executioner on VAT audits and investigations, able to punish innocent taxpayers without any concrete evidence of wrongdoing.

“The government must urgently make the necessary legislative changes to set deadlines for SARS to complete VAT audits, limit the number of periods for which VAT can be withheld and allow taxpayers with a good compliance history to request the release of VAT refunds, without providing security. Businesses are expected to pay VAT on time. SARS should also pay VAT refunds on time.”