BUSINESS NEWS - The South African Revenue Service (Sars) is mandated to pay a taxpayer interest if they have overpaid their taxes, and likewise, the taxpayer is mandated to pay Sars interest if Sars has made an overpayment to the taxpayer.
The rationale for the payment of interest is to compensate a party for the economic loss of not having had use of those funds. The interest should run from the date that the party is short of the funds, to the date that the shortfall is paid.
This holds true for when the taxpayer has to pay Sars interest, but not when Sars is mandated to pay the taxpayer interest.
In fact, in a recent amendment to the Tax Administration Act (TAA), Sars has awarded itself a 30-day “interest-free” holiday.
Common law right
There is a common law right to claim interest on a contract, unless interest is waived by agreement between the parties.
If the contract is silent on the rate of interest, the court has held that interest should then be paid at the prescribed rate. (Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga & others (590/2011)  ZASCA 128).
The act prior to amendment
The TAA has provided for the payment of interest as follows:
Where an overpayment is made by:
- Sars to a taxpayer – interest runs from the time the excess amount was paid by Sars (the effective date) until the date that the taxpayer has repaid Sars (Section 187(3)(g)).
- The taxpayer – interest runs from the later of the effective date or the date that the excess was received by Sars, until the date the taxpayer is refunded (Section 188(3)(a)).
At this stage, the taxpayer and Sars were on an equal footing.
The sneaky amendment
The TAA was updated when the proposed amendments were promulgated in January 2021.
Included in the amendments was a new insertion, Section 187(3)(h), which provides that Sars is only required to calculate interest on an overpayment after a 30-day period has elapsed – in effect giving Sars an “interest-free” window.
Taxpayers, however, remain liable to Sars for the interest on Sars’s overpayment from the date of payment.
Bowmans senior associate Julia Choate says the insertion “appears to skew the status quo in Sars’s favour”.
“Although we have yet to see how Sars will implement this amendment in practice,” she adds.
Choate cautions that “taxpayers will need to be considerably more vigilant when submitting returns and making payment to Sars, to ensure that they are not ‘penalised’ for accidentally paying Sars too much money”.
Ongoing problems in paying refunds
There have been ongoing problems in the payment of refunds.
The full payment of interest on a delayed refund should be the least a taxpayer can expect.
To give Sars a 30-day interest-free period to carry out various crosschecks would make most taxpayers choke.
In a judgment handed down in November 2020, taxpayer Rappa Resources had to urgently request a court order for Sars to pay value-added tax (Vat) refunds.
The taxpayer also requested an order that Sars complete a Vat audit that was instituted in March 2020. Sars stopped the payment of Rappa’s Vat refunds while the audit was taking place. But there didn’t appear to be a finishing line.
The total amount of refunds withheld from February to June 2020 approximated R1.6 billion.