Ernst & Young on tax
Interest & penalties on late VAT payments
By Nikia Bauernschmitt

Nikia Bauernschmitt is a Senior Tax Consultant at Ernst and Young. Should readers have any queries, they are invited to send them to nikia.bauernschmitt@za.ey.com .

The VAT tax system was simplified with the abolishing of the compounded interest rate on late VAT payments and the calculation of penalties on late VAT payments. The amendments came into effect on 1 October 2004. After 1 October 2004 where a taxpayer fails to pay any VAT by the due date, simple interest will be levied at 20% per annum (which is punitive compared to the prime rate of 13,25%), calculated on the VAT amount unpaid from the day after the VAT became due until the date it is paid.
Before 1 October 2004, compounded interest was payable on the VAT unpaid as well as on any penalty imposed in terms of the VAT Act. After the amendment, interest will only be levied on the VAT amount.

Section 53(4) of the VAT Act was deleted with effect from 1 October 2004. The effect of this amendment is to limit the interest imposed on the late payment of VAT to the amount of VAT owing. There was no limitation on the interest imposed before this amendment and the interest could in fact exceed the original tax amount owing.
Interest must be calculated on the compounded basis up to 30 September 2004 where after it will be calculated on the simple basis, where a taxpayer failed to pay amounts due prior to 1 October 2004 but pays the amount thereafter. After 1 October 2004, any VAT that is not paid by the due date attracts a penalty of 10% of the unpaid VAT for each month or part of a month that the VAT remains unpaid. The penalty payable is limited to the amount of the unpaid tax and is payable in addition to the interest that is payable.

A taxpayer will remain liable for the payment of a penalty of N$100 per day for each day during which the return or import VAT return remains outstanding. This penalty will be levied irrespective of whether a taxpayer is claiming a refund from the Receiver of Revenue. Readers are reminded that the bi-monthly VAT return together with the VAT payment must be submitted to the Receiver of Revenue by the 25th calendar day of the month following the month in which the tax period ends. The import VAT return and payment must be submitted by the 20th calendar day of the month following the month during which the liability to pay the import VAT arises. Both the bi-monthly and import VAT return must be submitted to the Receiver of Revenue even if the return reflects no transaction. If the 20th or 25th calendar day falls on a weekend or public holiday the payment can be made on the next working day in terms of VAT Practice Note 1 of 2000