In relation to a given tax type, in terms of section 95 of the Tax Administration Act, 2011 (the TAA), SARS may issue an assessment based in whole or in part on an estimate (an “estimated assessment”) to a taxpayer if the taxpayer –
- - does not submit a return;
- - submits a return with incorrect or inadequate information;
- - submits incorrect or inadequate relevant material requested by SARS; or
- - does not submit a response to a request for relevant material (which may include information and/or documentation stipulated in a verification request) after more than one request for such relevant material by SARS.
On 11 December 2023 SARS announced, through its website, that it would implement the issuing of estimated assessments, specifically for VAT, in the fourth of the above circumstances. That is, if the vendor does not submit a response to a request for relevant material (which may include requested information and/or documentation stipulated in a verification request) after more than one request for such relevant material by SARS.
Importantly, if SARS has issued an estimated VAT assessment:
- - The estimated assessment will be in the form of a VAT217 notice of assessment;
- - The vendor will not be allowed to request a correction for the tax period that is the subject of the estimated assessment;
- - If the vendor disagrees with the estimated assessment, it has an opportunity to submit the correct relevant material within 40 business days from the date of the VAT217 notice;
- - The vendor may request an extension from SARS of the period of 40 business days to submit the relevant material, if reasonable grounds for the extension are provided;
- - The vendor may submit a suspension of payment request in terms of section 164 of the TAA, if the estimated assessment resulted in an amount payable to SARS for that period; and
- - The vendor cannot object to an estimated assessment in terms of the normal dispute resolution process; the correct steps to “dispute” an estimated assessment are:
1. The vendor must submit the complete and correct relevant material requested by SARS within 40 business days from the issuance of the VAT217 notice of assessment; and
2. Only after the vendor has submitted the complete and correct relevant material and SARS has not subsequently issued a reduced assessment (ie, corrected the assessment), will the taxpayer be allowed to object against the VAT217 estimated assessment.
The TAA does not actually describe an assessment issued in the above circumstances as an “estimated assessment”; instead, section 95(1) of the TAA refers to “[an assessment] based in whole or in part on an estimate” to describe what is commonly referred to as an “estimated assessment”. The same section states that such an assessment may either be an original, additional, reduced or jeopardy assessment. Since an assessment issued by SARS is not headed “assessment based on an estimate”, the question arises how the vendor is meant to know that the assessment is in fact one that is based on an estimate and not merely a “regular” original, additional, reduced or jeopardy assessment. This is important for the vendor to know because the allowable procedure to dispute an assessment that is based on an estimate is different from the procedure that has to be followed if the assessment is not based on an estimate.
If the assessment is not based on an estimate, the vendor would follow the normal dispute resolution process, which is to object to the assessment in terms of section 104 of the TAA. On the other hand, if the assessment is based on an estimate, then, in terms of section 95 of the TAA, the vendor must first submit the requested relevant material. Only thereafter, if SARS does not issue the vendor with a corrected assessment, is the vendor permitted to dispute the matter in terms of the normal dispute resolution process.
In terms of section 96(2)(a) of the TAA, where SARS raises an assessment based on an estimate, it is obliged to inform the taxpayer of the grounds on which the assessment was issued. However, it is not clear whether this would require SARS to stipulate that the assessment was based on an estimate.
In view of these issues, it seems sensible for taxpayers to request reasons for every assessment issued by SARS and to expressly request SARS to indicate, as part of the reasons, whether the assessment was based on an estimate. This would enable the taxpayer to engage with SARS in the appropriate manner.
It must be stressed that it is important for vendors to always submit complete and correct relevant material to SARS upon request (typically as part of the verification process), to ensure compliance and to avoid protracted disputes.
The requests for relevant material will normally be issued on eFiling or may be sent via email to the email address specified for communication purposes on the vendors’ eFiling profile.
Following the incorrect process can result in significant delays in obtaining a refund due from SARS or having to enter into a protracted dispute resolution process.
Daniel Schmidt
BDO
Acts and Bills
· Tax Administration Act 28 of 2011: Sections 95 (specific reference to subsection (1)), 96(2)(a), 104 & 164.
Other documents
· VAT217 notice of assessment.