Industry challenges penalties for late VAT payment

The Port Liaison Forum (PLF) in Cape Town has called on the industry to come forward with any examples of penalties imposed for late VAT payments. This is part of an attempt by the PLF to address legislation that allows customs to impose a 10% penalty for the late or inaccurate payment of VAT. According to a spokesman for the PLF, the matter is being taken up with customs officials who have asked for examples of where industry believes the penalty was imposed unjustly. “Prior to the advent of the Tax Administration Act, section 39(4) of the VAT Act permitted Sars to waive the late payment VAT penalty if there was no intention to avoid payment of VAT or to pay VAT late. These provisions were revoked and a whole set of different, much narrower, criteria have now been established in the Tax Administration Act by Sars,” said the organisation’s customs expert. “Currently what is happening is that the penalties are being indiscriminately imposed even if there was no intention to avoid VAT payment, in accordance with this new set of criteria. If the penalty payable is R2000 or more it is nearly impossible to avoid paying it, due to the requirements that the late payment must be due to an act of God, a service interruption, severe emotional or mental distress, a mistake by Sars or any circumstances of comparable seriousness.” It is a matter that has also come to the attention of the South African Association of Freight Forwarders which has applied to customs for a VAT Class Ruling to get exemption from the penalty. Sars recently reverted with the Class Ruling refusing to provide any form of relief, pointing to the narrow decisional referents now provided for in the amended legislation, which is according to Sars uncompromising and therefore does not permit the organisation to provide such relief to the industry through this mechanism. According to Clifford Evans, a customs advisor for Ceva Logistics in Cape Town, in practice there are many cases where VAT is incorrectly paid, which now automatically incur this late payment penalty. Examples include circumstances which cannot be ascribed to error at all, such as where there are price reviews in respect of imported goods leading to debits, and provisional customs entry of imported bulk products which can only be properly tallied after landing. “That does not mean the agent had no intention of paying the VAT or of disclosing the information. Anything from a clerical error to an incorrect calculation of duties impacts the VAT payment. If there is an underpayment of duties, for instance, there is an underpayment of VAT, as the value for VAT purposes includes all duties payable and must therefore be increased to take account of the underpayment.” Evans said this was then immediately interpreted as a delayed payment of VAT and according to legislation allowed for the compulsory imposition of the penalty. In some cases the penalty is R5 or less, and then customs will not release the shipment, which consequently incurs thousands of rands in storage until the negligible VAT penalty has been paid. Industry accepts that where VAT was intentionally under-declared, this could be considered as fraud and any penalties imposed would, in general, be deserved. “We are, however, concerned with instances where voluntary disclosure takes place and Sars takes advantage of legislation to impose penalties regardless of the circumstances,” he said. “There is a host of reasons why VAT payments can be delayed where it was never intentional. Provisional declarations are just one example – as mentioned above – where there is often a discrepancy once the actual goods arrive. Other times unclear clearing instructions are to blame.” According to Mike Walwyn, chairman of the PLF, any organisations that has experienced such incidents where the penalty has been imposed and where there was no intent to avoid paying VAT has good reason for the penalty to be remitted – if not in terms of the current tax legislation, then certainly in terms of the Constitution. “It is very seldom deliberate. We are hoping to address this situation,” he said.