The VAT Department yesterday said it needed policies which were more focused to include proven methods of case selection that took into consideration its resources and the estimated level of revenue at risk.

It also said that it was drawing up amendments to the law to discourage lack of cooperation by taxpayers.

The department was replying to comments by the Auditor General that notwithstanding the improvements in the VAT revenue yields through its audit work, the opportunity existed for the department to further improve its effectiveness regarding VAT investigations and credit control exercises.

In a statement issued through the Department of Information, the VAT Department said that when targeting taxpayers for an investigation, the department attempted to identify taxpayers who posed a risk to VAT revenue. Through credit control exercises, the department aimed to validate VAT credit claims by taxpayers prior to making any refund.

The department said that 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 monitored the effectiveness of the risk analysis criteria, their relevant parameters and weightings, as well as economic trends which impinged 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,” it said.

Efforts to complement the in-house experience by employing professionally-qualified personnel and further hands-on training needed 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 was in a better position to deal with VAT defaulters, it said.

The department maintained that its position when conducting investigations, credit control exercises, and in the Board of Appeals was jeopardised because taxpayers were not always willing to offer their full cooperation from the outset – generally by submitting the requested documentation only during a sitting of the Appeals Board. In order to deter the non-submission of documentation, the department said, it was working on legislative amendments to the VAT Act.

It added that 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, needed to be complemented with the fine-tuning of the department’s methods of analysing taxpayers’ risk to VAT revenue.