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VAT Case law: What happens if you can't produce tax invoices for input tax claims?

by , 21 December 2015
Within the VAT chain, the most important link is the tax invoice.

If you claim input tax without it, SARS will bring up an assessment and penalise you very heavily.

Here is a VAT case that shows you what happens if you claim input tax without tax invoices. Read it and see what you can learn from it...

VAT Case 789, North Gauteng High Court, 10th September 2012:

In this VAT case, a vendor claimed input tax to the value of R3 million. But when SARS requested the tax invoices in order to confirm this claim, he couldn't provide them.

SARS then raised an assessment on him, after which it enforced an understatement penalty of 200% AND interest. This all came to a total of R4.5 million.

Read on to find out what happened next…
 
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If you claim input tax, your SARS VAT audit is impending
 
And when the SARS auditor comes knocking or sends a query, he'll check if:
 
·        Your books and records comply with the requirements of Section 55 of the VAT Act;
·        You didn't claim on exempt supplies;
·        Any of your claims were for non-taxable supplies;
·        You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20 of the VAT Act);
·        And more!
 
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
 
Here's everything you need to secure every input tax claim you submit.


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Article continued…

The vendor then claimed that there was fraud at the supplier's business, and that's why he couldn't get the necessary tax invoices. He then said that SARS should carry out its discretion in terms of Section 20(7) of the VAT Act, to allow input tax without tax invoices.

But SARS refused to do this, and he wasn't allowed to appeal against such a decision (as the VAT Act doesn't allow this).

So what this meant was that the vendor was unable to go to the Tax Court to review SARS' decision here. Instead, he would have to take the case to the High Court under the Promotion of Administrative Justice Act, after which he would have to prove that the decision by SARS was unreasonable.

What can you learn from this case?

As you can see, this case become very complicated very quickly. So here are 4 simple things you can take home with you…

1. DON'T claim input tax without tax invoices to confirm the claim.
2. Ensure you have valid tax invoices for ALL your purchases.
3. Keep all your tax invoices safe and on file for at least five years.
4. If you can't produce your tax invoices, SARS will think you're trying to claim money fraudulently, after which they'll raise an assessment against you. On top of this, they'll hit you hard with penalties AND interest!
 
*Do you want to learn more on tax invoices, as well as much more great VAT advice? Then subscribe to the Practical VAT Loose Leaf Service today.

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