New VAT registration process

SARS 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 applicant's 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.