TUCKED away in the technical amendments to tax legislation in the 2026 Budget is the proposal to scrap a section of the value-added tax (Vat) Act that will result in the sale of gold to the South African Reserve Bank (Sarb), the SA Mint, and South Africa’s commercial banks becoming 15% more expensive.
The proposal represents a “significant and unjustified policy shift” affecting the Vat treatment of investment-grade gold supplied to banks, creating misalignment with international standards and policy uncertainty, ENS tax executives warn.
The section – Section 11(1)(f) of the Vat Act – allows for the zero-rating of gold supplies in specific forms to the Sarb, SA Mint and banks, and has been in place for 35 years.
Its scrapping will result in higher costs to purchase gold, greater compliance risks to banks, and cash flow implications for the Sarb, SA Mint and commercial banks, says ENS in a recent submission to the parliamentary standing committee on finance.
Commercial and central banks acquire gold to trade, keep as reserves, and to offer gold loans to jewellery manufacturers and industrial users (allowing these users to obtain gold without immediate purchase).
Questionable timing
ENS executive Annelie Giles questions the timing of the proposal and the reasons behind it.
It is unclear what “mischief” National Treasury is trying to cure, she says.
“This proposed amendment comes as a complete surprise. It was never part of the Annexure C discussions prior to the budget.”
It is even more surprising as the Constitutional Court heard a case at the end of last year that specifically deals with the interpretation of the section.
Judgment in the matter between Lueven Metals and the South African Revenue Service (Sars) has been reserved.
Wording
The section in question allows for the zero-rating of gold in the form of “bars, ingots, buttons, wire, plate or granules or in solution, which has not undergone any manufacturing process other than the refining thereof …”.
Giles says the wording of the section lacks elegance.
Charles de Wet, Vat specialist at ENS, adds that Sars has been persisting with a “literalist interpretation” that only gold originating from primary sources (newly mined gold) qualifies to be zero-rated.
If Sars is correct that only newly mined (virgin gold) can be zero-rated when supplied to the Sarb, SA Mint and banks, then gold can only be zero-rated once in its entire lifetime (when it is mine-to-bank), notes Giles.
National Treasury argues in its proposal that the section provides for the zero-rating of gold, in specific forms, supplied to the listed entities that has not “undergone any manufacturing process other than the refining thereof or the manufacture or production in order to achieve such specific forms”.
Nose ring or virgin gold?
Treasury says it is “complex” to trace or isolate unprocessed, primary-source gold, and “refined” products will likely have both components of primary and secondary gold. Hence it is impossible for suppliers to comply with the section.
“The thinking behind this interpretation is that one has to look into the gold bar to see if any part the bar had been of a nose ring or a gold coin in its previous life,” says Giles.
The implication is that if there is a nose ring in the mix the supply cannot be zero-rated. The fact is there is no mention in the wording of the section, the explanatory memorandum of the 1991 Vat Bill, or in Sars’s own interpretation note that only virgin gold sold to the specific entities can be zero-rated.
“Gold is a finite natural resource,” adds De Wet.
“Section 11(1)(f) expressly permits refining and thus promotes recycling of gold derived from secondary sources.”
In the Lueven case the company is asking for a declaratory order on the interpretation of the section.
It has supplied its recycled gold, in the form of gold bars, to a commercial bank for many years and its supplies have consistently been zero-rated.
However, following a dispute with Sars its Vat refunds have been withheld unilaterally.
The new interpretation by Sars (effectively excluding gold recyclers from the Vat zero-rating section) is purportedly to address the illicit smelting of Krugerrands.
Lueven was never accused of such conduct.
ConCourt ruling awaited
In its written submissions before the Constitutional Court Lueven says it approached the high court and subsequently the Supreme Court of Appeal for a declaratory order on the correct interpretation of the section.
Both courts left the legal question unanswered, hence the appeal to the Constitutional Court.
Lueven argues that absent an answer the parties – as well as tax practitioners, the public in general, and the second-hand industry – are “left to languish in legal uncertainty” concerning an important statutory provision whose interpretation Sars suddenly sought to reconstrue in terms inconsistent with its own binding class rulings.
ENS executives believe it will be premature to scrap the section until there is a decision by the Constitutional Court.
They propose the formation of a working group that can revamp the Vat provisions and address concerns through consultation rather than an isolated appeal.
