SARS nails taxpayer for R40 million
A company looking for legal clarity from the South African Revenue Service (SARS) about its tax affairs ended up with an adverse ruling against it, with the taxman looking to recover R39.6 million.
The ruling came down in a judgement from the Supreme Court of Appeal (SCA) on 29 August 2025, whereby a major Northern Cape mining group was disentitled from claiming rebates on diesel.
This resulted in the group being ordered to pay SARS R39.6 million, including interest and penalties.
According to Tax Consulting SA, the issue stemmed from the company’s auditors approaching SARS for an advance tax ruling.
An advance tax ruling from SARS usually promotes clarity, consistency and certainty on the interpretation and application of tax laws.
In this specific case, the auditors approached SARS for a ruling on whether a diesel refund in respect of contactors could be claimed.
This then triggered SARS to initiate a robust compliance audit of the company’s operations. SARS then detected a “risky tax treatment strategy” and proceeded to conduct a broader diesel refund audit.
Upon completion of the audit, and imposing both interest and penalties, the taxpayer was stuck with the most expensive ruling request it could imagine, to the tune of R39,566,010.40.
The company then appealed the audit with the SCA, leading to the judgment against the taxpayer.
The SCA’s judgement’s core focus was the company’s claim for diesel refunds, with the primary dispute revolving around whether its contracts with its mining service providers were on a “wet” or “dry” basis.
According to Tax Consulting, this basis determines eligibility for diesel refunds under the Customs and Excise Act.
Only diesel used by contractors contracted on a dry basis qualifies as eligible purchases for the diesel rebate scheme.
Dry contracting is where the contractors only provide the equipment used by a company. The diesel for the equipment is supplied by the company, not the contractor.
Wet contracting is where the contractors provide the equipment and the diesel, which is not eligible for the rebate. SARS found that this was the case in this matter.
Aside from the findings of the contracts being on a “wet” basis, another key shortcoming was the company’s record keeping.
Tax Consulting said this was especially so with logbooks, where requirements are clear in law, with SARS explicitly stating that “substantial compliance is not sufficient”.
SARS is not messing around
Tax Consulting said that the ruling should serve as a clear warning to all taxpayers to always ensure full compliance with tax acts and to ensure correct record-keeping.
It added that non-compliance could result in penalties being imposed of up to 200% of the corresponding tax liability.
The tax experts said that SARS has bolstered its audit capacity through AI use and high-tech systems, which allows it to quickly process historic taxpayer returns and things like logbooks with “absolute precision”.
SARS’ audit team also appears to be strongly enforcing a zero-tolerance policy on any non-compliance, with the tax consultancy flagging a “significant spike” in audits.
“In most cases, these result in the audit being finalised with adjustments, due to taxpayers missing the Request for Relevant Material, or their supporting documents not meeting SARS’ standard,” the group said.
“SARS’ strategy to instil a sense of urgency and responsibility among taxpayers’ hinges on making non-compliance both hard and costly. By detecting and addressing non-compliance rigorously, SARS aims to deter tax evasion and ensure that all taxpayers fulfil their obligations.”
The group warned that recent trends have also shown SARS considering not just current compliance, but also deep diving into historic risks of non-compliance.
In some instances, SARS is even requesting taxpayers to look forward and provide it with income and expenditure estimates for future tax periods.
“This approach emphasizes that no taxpayer, regardless of their economic standing, is beyond the reach of SARS’ compliance efforts,” it said.
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