Case study illustrates why tax invoices are so important
A vendor claimed input tax of over R3 million. But when SARS asked for the tax invoices to verify this claim, he couldn't provide them.
SARS raised an assessment on him. And it added an understatement penalty of 200% and interest. This came to more than R4.5 million in total. The vendor claimed there was fraud at his supplier's business. So because of this, he couldn't get the necessary tax invoices. He stated that SARS should exercise its discretion in terms of Section 20(7) of the Vat Act, to allow the input tax without tax invoices.
But SARS refused to do this.
And to make it worse, the Vat Act doesn't allow you to object or appeal against such a decision.
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So this meant the vendor couldn't go to the tax court to review the action of SARS in this circumstance.
Note: In the above case law, the vendor can't object, appeal or go to tax court. He would have to take this case to the High Court under the Promotion of Administrative Justice Act. Here, he'd have to prove the decision by SARS was unreasonable.
Here's what you can learn from this case if you don't want to have any troubles with SARS!
There are four lessons you can learn from this case:
1. Don't claim input tax without tax invoices;
2. Make sure you have valid tax invoices for all your purchases;
3. Keep your tax invoices safe and on file for at least five years; and
4. If you can't produce your tax invoices, SARS will think you're trying to claim money fraudulently and will raise an assessment against you. It will slap you with penalties and fines!
Keep in mind that you're the one who has to get valid tax invoices for purchases over R5 000, from your suppliers reflecting your correct Vat registration number. Or you'll forfeit your refund.
Here's a checklist that will hopefully clarify when you need a tax invoice
❑ If the transaction is for more than R50, you need a valid tax invoice to claim for it.
❑ If the transaction is between R50 and R5 000, an abbreviated tax invoice is acceptable.
❑ If the transaction is more than R5 000, you must get a full tax invoice.
❑ You need a full tax invoice for any zero-rated supply, even if the value of the supply is less than R5 000.
❑ Get your tax invoice within 21 days of the sale.
So remember that you don't need a tax invoice for transactions below R50. But you'll have to keep some kind of evidence of the transaction, like a till slip or petty cash slip, which you can use to substantiate your input tax claim.