Credit

The National Audit Office (NAO) has submitted its latest report which focuses on VAT investigations and credit control exercises carried out by the VAT Department. The report is entitled Performance Audit Reviewing VAT Liability: VAT Investigations and Credit Control Audits. The Auditor General reported that notwithstanding the improvements in the VAT revenue yields through its audit work, the opportunity exists for the Department to further improve its effectiveness regarding VAT investigations and Credit Control Exercises.

When targeting taxpayers for an investigation, the Department attempts to identify taxpayers who pose a risk to VAT revenue. Through Credit Control Exercises, the Department aims to validate VAT credit claims by taxpayers prior to making any refund. The targeting of taxpayers for VAT investigations and Credit Control Exercises through the Department’s computerised systems did not achieve the desired results as the Department did not have the resources to scientifically develop and monitor its risk assessment of taxpayers.

There were no ongoing scientific studies that monitor the effectiveness of the risk analysis criteria, their relevant parameters and weightings, as well as economic trends which impinge on the VAT process. The Department’s Management has to constantly apply its value judgement in the process of targeting potential defaulters to an investigation or a credit control exercise.

However, policies in this regard need to be more focused to include proven methods of case selection that take into consideration the Department’s resources and the estimated level of revenue at risk. Efforts to complement the in-house experience by employing professionally qualified personnel and further hands on training need to be sustained. This would provide the department with the opportunity to be more methodical by applying recognised auditing standards.

In turn, this would ensure that the Department is in a better position to deal with VAT defaulters. The Department maintains that its position when conducting investigations, Credit Control Exercises, and in the Board of Appeals is jeopardised because taxpayers are not always willing to offer their full co-operation from the outset, generally by submitting the requested documentation only during the setting of the Board.

In order to deter the non-submission of documentation, the Department is working on legislative amendments to the VAT Act. Recent efforts by the Department to improve its practices relating to the targeting of potential defaulters and its audit work should, even in the short term, improve results regarding the outcomes of investigations and credit control audits. These efforts, however, need to be complemented with the fine-tuning of the Department’s methods of analysing taxpayers’ risk to VAT revenue.