New VAT registration Process

- PricewaterhouseCoopers

SARS yesterday announced extreme new VAT registration procedures which are to be implemented with immediate effect.

From Monday, 10 November, persons applying for VAT registration will have to join long queues at their local SARS office in order to undergo a physical verification process. “This could result in CFOs of listed companies and business persons from remote areas having to spend most of the day in the queue at SARS offices which can process VAT registrations. The timing of this new procedure is particularly bad, given we are now in the tax filing season, and there are already long queues at all SARS offices” says Charles de Wet, PricewaterhouseCoopers SA Country Leader for Indirect Taxes. “Despite the electronic era in which we are living, with e-business being conducted globally, new applicants for VAT registration will now have to undergo a physical verification process. The representative person will have to present himself at a SARS office for fingerprinting, using biometric scanning functionality. While details of the new process are not yet known, the new requirements could have a dramatic impact on the already heavy administrative burdens carried by local businesses.”

Proof of residence (by way of an original Telkom, utility or electricity bill, which is not older than three months) will also have to be furnished. De Wet says that this will be a major hurdle for start up businesses which have no track record of their presence as yet.

The effect of the new verification process is that VAT numbers will no longer be allocated instantly on application at the counter. SARS will now validate the particulars before a VAT number gets allocated.

The new procedures not only impact businesses applying for VAT registration, but also affect those already registered, as VAT refunds will not be paid out until an applicants registered particulars have been verified. Where vendors cannot be contacted or traced in order to undergo the verification procedure, their VAT accounts may be suspended.

De Wet says that SARS revealed these measures yesterday by way of e-mails distributed to tax practitioners. “A formal media release announcing these changes has not even been published on SARS website.”

This is the third time in a relatively short period of time that South African businesses have been confronted with new VAT registration procedures. De Wet says that while the previous changes were aimed at streamlining the VAT process, these present changes move in the opposite direction, contrary to stated policy of simplifying tax processes, especially for small businesses.

De Wet says SARS has attributed the need for these new requirements to the prevalence of VAT fraud involving VAT refund scams.

“There is no doubt that VAT fraud is unacceptable and there are difficulties which SARS faces in identifying and combating it. The SARS commitment to terminate such fraud is essential and commendable but this should rather be done as part of its audit process. These new requirements are ill-considered and clearly against SARS policy and vision to enhance economic growth, support our integration into the global economy in a way that benefits all South Africans, simplify the tax compliance process and decrease administration costs for local businesses.”

De Wet concluded that SARS should reconsider the proposed implementation of such requirements, effective Monday, in the overall and best interests of the South African economy.

King breaks silence on Sars wars

by Peter de Ionno - Business Report

Dave King, whose multimillion-rand battle with the taxman has made him the country's most notorious alleged tax dodger, yesterday broke his eight-year silence, claiming that tax commissioner Pravin Gordhan had abused his powers in a personal vendetta against him.

King has fought furiously to hang on to the proceeds of the controversial 1998 JSE listing and the sale of shares held by him and a Guernsey trust in Specialised Outsourcing Limited, whose shares listed at R1.20 and rapidly rose to R80.

The firm's market capitalisation rose from R50 million at listing to more than R3.5 billion before the rush subsided and the share price collapsed amid market recrimination.

About 70 percent of the shares were held by King and trusts that had him and his family as beneficiaries. A central point of dispute in the fight with the SA Revenue Service (Sars) is whether the proceeds of the sale should be treated as capital or income, making it liable for taxation.

King faces a claim for more than R900 million in tax. Ben Nevis, the holding company that is controlled by the Guernsey trust, faces a Sars claim of R1.3 billion.

King said yesterday that he had spent about R150 million - and claimed that Sars had spent more than R200 million - in round after round of court appearances.

King faces about 322 charges, including fraud, money laundering, racketeering and tax evasion between 1990 and 2001. He is also facing charges of failing to submit tax returns between 2002 and 2005. If convicted, he could face a minimum of 15 years in jail.

Sars's response to King's accusations of abuse of process and of using criminal charges to intimidate and force tax payers into submission was to point out that fear of an extended prison term was the reason for King's "constant filibustering".

Despite King's protestations that he was prepared to pay his taxes and that his offers of a settlement at R300 million had been rejected, Sars responded with this statement: "King has had numerous opportunities over the past eight years to make a full and frank disclosure to Sars about his assets, income and tax affairs. He has so far steadfastly refused to do so, or alternatively has provided false information. In fact, King has repeatedly acted erratically by entering into negotiations with Sars under the pretence that he wants to resolve his tax affairs and has continuously walked away from negotiations."

For three hours King told his story, pacing back and forth in a reception room at the Johannesburg Country Club, speaking with a soft Scottish burr that recalled his Glaswegian origins. He said he had laboured to distil his tale from 300 000 pieces of paper into a 28-page statement.

But in the end, none of what he had to say - including allegations that unethical tactics were being used to enforce tax collection - was startling or surprising.