• FINANCE
coal exports is leading to a shortfall of approximately 26 million tonnes for 2022 . Coal prices have surged , and we are expecting a commodity price spike . Latest estimates are that South Africa stands to lose R117 billion from lost coal exports . A further problematic blockage is restrictive legislation and administrative red-tape , which is not fit for purpose but can be overcome relatively quickly . Notably , our economic growth relies a great deal on the export sector . Many export companies are owned by foreign investors and are a valuable source of foreign currency and job creation . But this red tape means that international businesses and investors are looking to other investment countries instead .
A further concern for the export industry is the structure of the VAT Act and the Tax Administration Act , and more specifically the manner in which SARS conducts VAT audits and withholds VAT refunds due . This issue has been raised by the Tax Ombud before Parliament , and discussed at the Nugent Commission .
SARS was also chastised in a recent High Court judgement , which held that SARS cannot conduct a VAT audit and withhold VAT refunds for an indefinite period , with no deadline , and no consideration of fairness and taxpayer rights – the audit must be completed within a reasonable time . The High Court further noted that SARS may not unlawfully withhold refunds for periods that are not yet under audit , and yet these problems persist .
Export businesses that operate on high volumes and low profit margins will inevitably have significant net VAT refund claims . To explain how the VAT system operates in relation to exports , the greater the volume of purchases from suppliers , the more input VAT that will be paid by exporters . In turn , the greater the exports made at a zero rate , the higher the net VAT refund will be to the exporter .
But SARS appears to audit and withhold VAT refunds from exporters , on no other basis than the VAT refunds claimed are “ too high ”.
The same concern applies to diesel rebates under the Diesel Refund System in terms of the Customs and Excise Act . These refunds are crucial to protecting the competitiveness of local mining companies in the international marketplace by reducing the cost impacts of skyrocketing fuel prices .
As with VAT refunds , there are numerous instances where SARS has withheld diesel rebates on the basis that a VAT audit is in progress , placing cash flow at risk and causing companies significant operational difficulties .
The concern that SARS acts as judge , juror and executioner has persisted for years . This concern does not centre around the right of SARS to conduct VAT audits , which is unarguable , but rather on the fact that taxpayers have absolutely no rights in the face of such audits – apart from seeking very expensive recourse in the courts . Statutory amendments are urgently required as part of the solution to South Africa unblocking the blockages and achieving a brighter economic future . •
Red-tape means that international businesses and investors are looking to other investment countries instead .
About the author : Ernest Lai King has 38 years ’ experience as a tax practitioner , focusing on mergers and acquisitions ( local and cross-border ), dispute resolution , opinions , structured finance , business restructuring and international tax .
Having served as the group tax consultant of two major listed Top 20 companies over a period of 16 years , he has extensive experience in the commercial sector . He was Head : Tax and Asia - Africa practice of Norton Rose ( SA ) and Hogan Lovells ( SA ).
He authored the South African chapter of the Cambridge University Press treatise ," A Global Analysis of Tax Treaty Disputes ," convened by the London School of Economics - Law Department . He received the Dealmakers Annual Awards 2013 – Individual Dealmaker of the Year .
Ernie is past deputy chairman and chairman of the South African Chamber of Business Tax Committee and council board member of the South African Institute of Tax Practitioners . Appointed as a member of the Income Tax Special Court of Appeal ( a State President appointment ) in 1993 , he engaged with the Commissioner ’ s Office of the SA Revenue Services and National Treasury on general tax matters , tax policy and new tax legislation .
Ernest Lai King
Ernest Lai King , Managing Director of 1 Road Consulting .
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32 • African Mining • June 2022 www . africanmining . co . za