The rules regarding the levying of interest on the late payment of value added tax (VAT) are often confusing, and the introduction of the Tax Administration Act, 28 of 2011 (the TAA) has contributed to the uncertainty as to the rules that apply. Taxand South Africa explores this matter further.
The TAA introduced a new interest regime for the levying of interest on unpaid taxes to ensure that the levying of interest is aligned across all taxes.
Section 187(1) of the TAA provides that interest accrues and is payable on the amount of the outstanding balance of a tax debt at the prescribed rate, from the effective date of the tax to the date the tax is paid. The “prescribed rate” is an annual interest rate that the Minister of Finance from time to time fixes by notice in the Government Gazette (currently 9.5%). Section 187(2) of the TAA provides that the interest is calculated on the daily balance owing and compounded monthly. The effective date in respect of the various taxes is described in section 187(3) for each type of tax.
Although section 187(1) of the TAA is in force, it is only applicable in so far as it relates to interest on an understatement penalty and on a tax debt resulting from a jeopardy assessment under the TAA. In terms of Proclamation 51 of 2012 (published in Government Gazette 35687 on 14 September 2012), only certain parts of section 187 of the TAA came into force on 1 October 2012 when the TAA was implemented. Proclamation 51 also stipulates that the amendments in schedule 1 of the TAA to any of the provisions of a tax Act relating to interest, shall not take effect.
The lack of discretion for SARS to remit the interest in these circumstances often serves as a deterrent for taxpayers to regularise VAT accounting errors.