Pretoria: The Commissioner for the South African Revenue Service (SARS), Dr. Johnstone Makhubu, has expressed approval following the Constitutional Court's unanimous decision against Lueven Metals (Pty) Ltd. This ruling upholds SARS' interpretation of the Value-Added Tax Act regarding recycled gold.
According to South African Government News Agency, the court confirmed that the zero-rating provision under section 11(1)(f) of the Value-Added Tax Act, 1991, does not extend to second-hand or recycled gold that has already been manufactured. This decision provides clear legal guidance and aims to curtail aggressive VAT interpretations, reinforcing SARS' commitment to principled tax law enforcement.
Dr. Makhubu emphasized that the judgment underscores the principle of applying legislation as it is written. The clarity provided by the Constitutional Court benefits vendors, financial institutions, and the precious metal industry concerning the VAT treatment of gold under section 11(1)(f).
The ruling specifies that zero-rating applies only when gold is supplied to the South African Reserve Bank, the South African Mint Company, or a registered bank in prescribed forms that have not undergone any manufacturing process other than refining or manufacturing into those forms.
The case originated from a dispute over the VAT treatment of refined gold supplied to prescribed purchasers. Lueven Metals, involved in refining second-hand gold, had treated its sales of refined gold bars to a commercial bank as zero-rated, despite the gold's origin from previously manufactured products like scrap jewellery. An audit by SARS determined these supplies did not qualify for zero-rating, a position upheld by the High Court and now the Constitutional Court, which dismissed the appeal with costs.
In its judgment, the Constitutional Court outlined three cumulative requirements for zero-rating: supply to a prescribed purchaser, supply in one of the prescribed forms, and the gold not undergoing any manufacturing process other than refining or manufacturing into those forms. Gold previously manufactured into non-prescribed forms, such as jewellery, falls outside the zero-rating scope.
SARS highlighted that its interpretation of the statutory text avoids rendering key provisions redundant. While refining removes the previous form of recycled gold, it does not negate the fact that the gold underwent a disqualifying manufacturing process. Thus, Lueven's recycled gold cannot benefit from zero-rating.
Dr. Makhubu noted that the judgment provides clarity for the gold, refining, and banking sectors, confirming that recycled gold remains subject to VAT at the standard rate. This supports compliant businesses and ensures fair competition. He emphasized that voluntary compliance relies on trust and certainty in the law, which this ruling reinforces.
Moreover, the judgment aligns with SARS' strategic intent to promote voluntary compliance and protect the tax base. Ensuring fair tax administration prevents any taxpayer from gaining unintended advantages, preserving revenue for essential services like education, healthcare, and infrastructure.