Major VAT win for SARS
The South African Revenue Service (SARS) has scored a major win in the Constitutional Court against companies that sell second-hand gold at zero VAT rates.
The apex court delivered its unanimous ruling on the issue on Tuesday, 26 June, ending a protracted years-long legal battle over interpretations of South Africa’s VAT laws.
The matter involved Lueven Metals, a company that trades in and refines precious metals, including gold. The group is a buyer and reseller of second-hand gold, such as scrap jewellery.
Lueven entered into an agreement with banking group Absa to supply gold bars that it refined to a purity level of at least 99.5%, or pure gold.
However, to produce the bars, the group would deposit its less pure gold scrap and bars with Rand Refinery, which would melt and refine the bars along with other depositors.
Crucially, Lueven had for years treated its sales to Absa as zero-rated for VAT. This also allowed the group to deduct input tax paid to suppliers of the second-hand gold it purchased.
Between 2018 and 2020, the group expected a tax refund of over R51 million, which triggered an audit from SARS.
The audit, which concluded in 2021, found that VAT declarations and tax invoices provided by Lueven reflected zero-rated supplies of over R4 billion had been made to Absa and Rand Refinery.
SARS determined that the gold purchased by the group had previously undergone a previous manufacturing process, rendering it ineligible for zero-rating.
According to South Africa’s tax laws, for gold to qualify for zero-rating, it must meet three requirements—the third of which is that it has not undergone any manufacturing process other than refining, manufacturing, or producing bars.
Lueven disagreed with SARS’ findings and launched a legal challenge in the High Court in June 2021.
The court dismissed the application, leading to an appeal being launched by Lueven at the Supreme Court of Appeal in 2023.
The SCA ultimately ruled in favour of SARS, dismissing the appeal on a preliminary point, never pronouncing on the actual issue before it.
This led to the matter being referred to the highest court of the land, with the Constitutional Court hearing it in November 2025 and delivering its ruling this week.
SARS going for gold
According to the ConCourt, the main argument presented against SARS’ interpretation of Section 11(1) of the South African Value-Added Tax (VAT) Act—which deals with zero-rating—was unconvincing.
In its litigation, Lueven had argued that the wording of refined gold, and particularly “which has not undergone any manufacturing process other than the refining thereof”, was open to interpretation beyond its simple reading.
It argued that refining ‘eradicates’ historical manufacturing processes, and that refining processes mix and comingle both newly mined and recycled gold, making it impossible to distinguish afterwards.
It also argued that none of the prevailing Acts contain a distinction between newly mined gold and recycled gold, requiring only that they be in a prescribed form and sold to prescribed groups.
However, SARS submitted that the ordinary meaning of the words in the Act was clear:
- The sale must be to the prescribed purchasers
- The gold must be in one of the prescribed forms
- The gold must not have undergone a process other than that of the refining thereof or manufacturing or production of the prescribed forms.
The Revenue Service said that the last clause expressly excludes second-hand gold from zero-rating, and that Lueven’s interpretation of the laws would effectively render the entire clause redundant.
It also rejected the notion that “refining” eradicated historic manufacturing, saying that it is a process to remove unwanted materials from gold to improve its purity levels.
This does not remove the fact that second-hand gold has undergone previous manufacturing processes, it said.
Regarding the mixing and comingling of gold, SARS added that it is up to the supplier to properly declare its taxable supplies. Both the refiner and supplier track the volume and have knowledge of these supplies.
The ConCourt ultimately agreed with SARS in the matter, describing Lueven’s arguments as “fallacious”, “untenable” and “unconvincing”.
“The High Court’s interpretation of the section was correct: Section 11(1)(f) of the VAT Act excludes the supply of second-hand gold,” the ConCourt said.
The appeal was dismissed with costs.
While SARS has ended years of litigation with a win, the victory comes just as Section 11(1)(f) of the VAT Act has been placed on the chopping block.
Presenting the 2026 National Budget in February, Finance Minister Enoch Godongwana proposed that section 11(1)(f) of the VAT Act be repealed.
If the section is repealed, the domestic supply of gold bullion to SARB, SA Mint and SA Banks will be subject to VAT at the standard rate, currently 15%.
Legal experts have warned that this will increase the cost of acquiring such gold in the South African market and will have other serious consequences for the economy.
The full ruling can be read below:
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