Value-added Tax
1813. Cancellation of registrations by SARS
January 2010 - Issue 125
During January 2009, SARS sent letters to a number of vendors notifying them that their VAT registrations had been suspended and that they needed to motivate why SARS should not cancel them. SARS summarily cancelled the VAT registrations of vendors who did not respond, even if the vendors had never received the letters. Apparently this exercise resulted in approximately 20 665 vendors being identified for possible deregistration.
On 11 September 2009, SARS issued another notice and, on 15 September 2009, a media release stating that it will cancel or suspend the registration for:
· Non-compliant VAT vendors who have failed to submit monthly VAT returns for prolonged periods;
· VAT vendors whose VAT returns for the last 12 months reflect a liability of zero i.e. these returns show no evidence of taxable supplies being made; and
· VAT vendors whose turnover per annum is below the voluntary registration threshold of R20 000.
SARS also stated that vendors who do not meet the proposed new minimum threshold of R50 000, effective from 1 March 2010, will also be required to deregister for VAT with effect from that date and that another cancellation exercise will be embarked upon at that stage.
SARS stated that this is required as part of an on-going process to clean up the VAT registration register.
It is therefore likely that vendors who have already submitted a motivation as to why they should remain registered for VAT following the January 2009 SARS letters, will have to do it now and then again in March 2010.
The motivation for the re-activation of the VAT registration should be made at the SARS branch where the vendor is registered, and must be made in person by the representative vendor or duly authorized and registered tax practitioner. The motivation for re-activation should include the following;
· Identity Document of vendor or representative vendor;
· Banking particulars and proof of the physical business address;
· A written submission describing the nature of the activity, together with reasons why the current business activities will only show turnover over R20 000 after a period of time, and the expected date that the business will reach this turnover threshold. This motivation should also include:
o Financial or other records to prove that turnover can reasonably be expected to exceed R20 000 in the next 12 months; and
o Copies of the 10 highest Rand value tax invoices for purchases in respect of capital goods and non-capital goods.
Although SARS may identify vendors that should no longer be registered for VAT in this manner, a large number of vendors that will be affected are start-up operations in the farming, construction and mining industry such as plantation farmers, property developers and exploration companies. In these instances, it generally takes a number of years before revenue is generated.
A further administrative burden is now placed on these vendors by SARS in that they are regularly required to motivate as to why they need to remain registered. If they do not react to the SARS letter, their VAT registration will simply be cancelled and their input tax deductions will be denied. One wonders why SARS does not keep a record or database of vendors who have already properly motivated their entitlement to be registered for VAT and exclude them from each VAT register cleanup process.
Vendors who did not generate taxable income during the past 12 month in excess of the minimum R20 000 threshold are well advised to present to SARS the required information, irrespective of whether a notification regarding the registration cancellation was received or not, to prevent cancellation of their VAT registrations. It is quite possible that the letter has either not been sent or could potentially get lost in the mail.
Edward Nathan Sonnenbergs
