Issue 20 (October 2025)
- Proposed amendments emanating from the Budget
- Supreme Court of Appeal rules in favour of Woolworths Holdings in a dispute with SARS
- Export of second-hand goods in South Africa
- Taxpayer’s right to object to an apportionment method approved by SARS
- Liability date to charge and collect VAT by a vendor
- Publications
Proposed amendments emanating from the Budget
National Treasury and SARS published the following draft regulations, tax bills for 2025 and the explanatory memoranda relating to them on 16 August 2025, which you can access via the SARS website by clicking on the links below:
- Draft Taxation Laws Amendment Bill 2025 (TLAB)
- Draft Tax Administration Laws Amendment Bill 2025 (TALAB)
- Draft regulations on the domestic reverse charge issued in terms of section 74(2) of the Value-Added Tax Act, 1991
- Draft regulations prescribing the application of paragraph (d) of the definition of “exported” in section 1(1) read with section 11(1)(a) of the Value-Added Tax Act, 1991
Comments on the aforementioned documents had to be submitted in writing by close of business on 12 September 2025 and were discussed at a public workshop.
Supreme Court of Appeal rules in favour of Woolworths Holdings in a dispute with SARS
In the recent judgment of The Commissioner for the South African Revenue Service v Woolworths Holdings Limited (863/2023) [2025] ZASCA 99, the Supreme Court of Appeal (SCA) dismissed the appeal against Woolworths Holdings Limited (Woolworths Holdings). The dispute centred on whether Woolworths Holdings, a listed investment holding company, was entitled to deduct input tax on costs incurred on underwriting services acquired in relation to a rights offer to raise capital for its acquisition of Australian retailer David Jones Limited in 2014. This judgment therefore addresses the deductibility of input tax incurred by an investment holding company in the context of capital-raising activities. The SCA upheld the Tax Court’s decision allowing Woolworths Holdings to deduct input tax on underwriting services related to a rights offer used to fund its acquisition of David Jones Limited.
In 2014, Woolworths Holdings acquired David Jones Limited for R21,4 billion. The acquisition was funded by existing cash, new debt facilities, and equity funding raised through a R10 billion fully underwritten renounceable rights offer. The rights offer was made to South African resident and foreign shareholders. For this purpose, Woolworths Holdings procured underwriting services from both resident and non-resident services providers. The services related to arranging and executing the equity bridge facility and the rights offer. Consequently, Woolworths Holdings incurred substantial costs in relation to these services from both local and foreign services providers.
Woolworths Holdings claimed the VAT incurred on these fees as input tax to the extent that the services were used in relation to the rights offer taken up by non-resident shareholders and declared output tax on imported services to the extent that the services were related to the resident shareholders. The input tax claimed was apportioned based on the view that the rights offer made to resident shareholders was an exempt financial service and the rights offer made to non-resident shareholders was a taxable zero-rated supply. SARS challenged this, but the SCA upheld the approach.
SARS disallowed the input tax deduction, imposed an additional of tax on imported services, and levied a 10% understatement penalty (USP). SARS reasoned that before the acquisition of David Jones Limited, Woolworths Holdings had not engaged in the activity of issuing shares in a continuous, unchanged, or uninterrupted manner, as an enterprise. Woolworths Holdings had not traded in the issuing of shares before the acquisition and did not do so subsequent to the acquisition. Rather, it conducted the rights offer as an isolated activity. The issuing of the shares was “not a sufficiently continuous or regular activity so as to constitute an enterprise activity”. For the same reason, SARS was of the view that the costs incurred in respect of the services rendered by the foreign suppliers related to a non-enterprise activity (the rights offer).
The Tax Court ruled in favour of Woolworths Holdings, finding that the expenses in relation to which the input tax deduction was claimed were incurred in furtherance of an enterprise conducted by Woolworths Holdings. This was on the basis that Woolworths Holdings was an investment holding company conducting an enterprise, which consisted of acquiring and managing investments, including raising capital to acquire subsidiaries, and providing management and support services to its subsidiaries. The Tax Court also found that the services supplied in relation to the issuing of shares under the rights offer to non-resident shareholders were not imported services and that Woolworths Holdings was not liable for USPs.
Court’s findings
The SCA affirmed the Tax Court’s finding that Woolworths Holdings operates as an active investment holding company, and that its activities, which includes acquiring, managing, and financing subsidiaries, constitute an enterprise under the VAT Act. The SCA rejected the interpretation that the rights offer was a once-off, non-enterprise activity, and emphasised that even once-off transactions like the rights offer, if connected to the commencement or furtherance of an enterprise, fall within the scope of taxable supplies. The SCA applied a broad interpretation to the definition of “enterprise” and relied on the case of the Commissioner for South African Revenue Service v Tiger Oats [2003] ZASCA 43; [2003] 2 All SA 604 (SCA); 65 SATC 281 to affirm that capital-raising and investment management, even if not frequent, are enterprise activities if they are core to the business.
It held that Woolworths Holdings’ capital-raising and investment management functions were integral to its enterprise as an active investment holding company. The underwriting services were used to raise capital for investment, directly enhancing the value of Woolworths Holdings’ enterprise. Therefore, the VAT incurred was deductible as input tax.
Regarding the issue of imported services, the Court held that services from foreign providers were not “imported services” under the VAT Act because they were used in the course of making taxable supplies. Thus, Woolworths Holdings was not liable for additional VAT on these services.
SARS imposed a 10% USP, alleging that Woolworths Holdings relied on a tax opinion obtained after the VAT return deadline. The Court found no evidence supporting this claim and ruled that the opinion was both timely and legally sound. The penalty was therefore unjustified.
Implications
The SCA clearly distinguished the present case from CSARS v De Beers (503/2011) [2012] ZASCA 103 (1 June 2012) (De Beers) citing that the factual context of this case is different to that in De Beers and noting that Woolworths Holdings’ core business is investment and capital management, unlike De Beers’ mining operations. In De Beers the SCA found that the enterprise was that of mining and selling diamonds, consequently the takeover-related services were not used in the course or furtherance of that enterprise and thus the VAT incurred was not deductible. The De Beers decision established that unless a company operates as an investment company, holding shares alone does not constitute an enterprise. In contrast, Woolworths Holdings’ rights offer was directly linked to its business of managing and expanding investments. Therefore, this judgment has a limited application and does not envisage that VAT on all expenses related to investment activities can be claimed as input tax as the rights offer would ordinarily be an exempt supply but as the supply in this case was made to non-residents it was zero-rated and as such a partially taxable activity.
Whilst this judgment may provide clarity specifically to investment holding companies by confirming that these entities may claim input tax on capital-raising expenses, provided they can demonstrate a functional link to their taxable enterprise activities, the question whether goods or services have been acquired for purpose of making taxable supplies needs to be carefully considered in relation to the specific circumstances of each case.
The full judgment can be accessed here.
Export of second-hand goods in South Africa
If second-hand goods, such as motor vehicles, are purchased from a VAT-registered vendor in South Africa and subsequently exported, the VAT treatment depends on several factors, particularly whether notional input tax was claimed and who is responsible for the export.
Understanding notional input tax
The term “second-hand goods” means any goods that were previously owned and used. Notional input tax is a special VAT mechanism that allows a VAT-registered vendor to claim input tax on the purchase of second-hand goods, even when the seller is not VAT-registered and no VAT was charged on the sale. However, notional input tax may only be claimed to the extent that payment has been made. The rationale for allowing a vendor to claim the notional input tax is to make provision for when goods are sold by private persons (non-vendors) and re-enter the business sector and to ultimately ensure that VAT is paid to SARS only on the value added by a vendor. When a non-vendor acquires goods, that non-vendor is the final consumer, and the VAT is borne by such person as the non-vendor is not entitled to claim input tax when it acquired the goods. However, when these goods are subsequently sold as second-hand goods to a vendor for instance, there is a tax element included in the selling price which must now be unlocked. The vendor must account for VAT on the margin which is the difference between the selling price and the cost of the goods. To achieve this, the vendor is allowed a notional input tax deduction on acquisition of the second-hand goods. The notional input tax is calculated by multiplying the tax fraction (15/115) by the actual purchase price or the open market value of the goods, whichever is the lesser.
For example, X a non-vendor purchased a motor vehicle for R200 000 and paid VAT of R30 000. A few years later X sells the second-hand vehicle to a motor dealer and registered VAT vendor for R115,000 (which is also the open market value of the vehicle). The motor dealer sells the car for R120 000 and charges VAT of R18 000.
If the motor dealer paid the full amount of the purchase price and meets all conditions, it may claim R15,000 as notional input tax. (Notional input tax = 15/115 × R115,000 = R15,000). The purchaser price is thus made up of the value of R100 000 and notional input tax of R15 000.
This transaction would be reflected as follows-
Output tax = R18 000
Less notional input tax = R15 000
Amount payable to SARS = R 3 000
Therefore, the car dealer’s mark-up or value-add, which is R20 000 (R120 000- R100 000), is correctly taxed, namely, 15% of R20 000= R3000.
To claim notional input tax, the purchaser must:
- Be a VAT-registered vendor.
- Acquire the goods under a non-taxable transaction in the course or furtherance of an enterprise.
- Obtain and retain a signed VAT 264 declaration completed by both parties, which includes the following:
- Seller’s name, address, and ID (or company registration documents)
- Description and quantity of the goods
- Consideration for the supply
- Proof of payment
- Declaration by the supplier stating that the supply is not a taxable supply
Export of second-hand goods
A vendor may levy VAT at the zero rate on the supply of movable goods that are exported by either the vendor (direct export) or a qualifying purchaser in limited circumstances (indirect export) to any export country. In the case of indirect exports, the supplier will charge VAT at the standard rate, unless the supplier has elected to apply the zero rate under Part Two of the Export Regulations. However, exports cannot be zero-rated if second-hand goods are supplied and the supplier of the second-hand goods deducted notional input tax on the acquisition of such goods (proviso to section 11(1)). Therefore, if the seller claimed notional input tax or obtained a completed VAT 264 that indicates the intention to claim the notional input tax, the sale cannot be zero-rated and VAT must be charged at the standard rate of 15%.
Direct exports
In the case of direct exports, a special valuation rule applies. The supplier must levy VAT at the standard rate on the export sale, equal to the notional input tax originally deducted on the goods now being exported.
For example, Vendor ABC being an art gallery acquires a second-hand painting for R11 500 from a non-vendor and claims notional input tax of R1 500 (R11 500 x 15/115). If ABC sells and exports the painting to X in Botswana the sale cannot be zero-rated, and ABC must levy VAT of R1 500 on the sale (amount equal to the notional input tax deducted). The tax invoice issued to X must either reflect that VAT of R1 500 has been charged or that the selling price includes VAT of R1 500. X is not entitled to a refund of the R1 500 VAT charged.
Indirect exports
Often when second-hand goods are sold in South Africa to a foreign purchaser, the seller may be unaware that the goods may be exported. In the case of indirect exports of second-hand goods, foreign purchasers may apply for a VAT refund through the VAT Refund Administrator (VRA) if they meet the criteria, which includes retaining all documentation and ensuring the export occurs within the prescribed timeframe. However, refunds are limited and the VRA may not refund the amount of the notional input tax deduction to the qualifying purchaser. The non-resident purchaser will only be able to claim a refund to the extent that the VAT charged exceeds the amount of notional input tax claimed by the seller. The VAT refund is therefore calculated as VAT paid by the purchaser less the notional input tax previously claimed by seller.
Assume the facts in the example above apply but instead ABC sells the painting to Y for R16 500 (including VAT of R2 152,17) and Y collects and exports the painting. The VAT refund by the VRA is determined by the amount of VAT charged in excess of the notional input tax claimed by ABC. Therefore, Y will be entitled to a refund of R652,17 (that is, the VAT charged of R2152,17 minus the notional input tax claimed of R1 500).
The rationale for limiting the refund to the purchaser is to prevent a double recovery of VAT on the basis that if the seller claimed the notional input tax and the purchaser is allowed to claim the full VAT levied on the supply as a refund, this would result in a double recovery from SARS.
Should the second-hand goods be acquired by the seller from another registered vendor under a normal taxable supply before being sold and exported, a normal input tax claim is available to the seller (no notional input tax), and the full amount of VAT charged to the purchaser may be refunded (less the VRA’s commission). The reason is that the supplier would not have deducted a notional input tax credit on the acquisition of those second-hand goods. In this case the normal rules apply and the subsequent export of those second-hand goods may be subject to VAT at the zero rate.
Exporting second-hand goods, such as motor vehicles from South Africa, involves complex VAT considerations. Purchasers should be aware that refunds are subject to strict legal and procedural conditions, especially if notional input tax has been claimed. Vendors and purchasers are obliged to understand the rules, maintain accurate records, and comply with SARS and VRA requirements to avoid financial and compliance risks.
Taxpayer’s right to object to an apportionment method approved by SARS
On 8 July 2025 the SCA dismissed an appeal brought by the Commissioner against African Bank Limited (African Bank), in the matter between the Commissioner for the South African Revenue Service v African Bank Limited (242/2024) [2025] ZASCA 101. The appeal challenged the jurisdiction of the Tax Court to hear a dispute regarding a VAT apportionment method under the VAT Act and did not deal with the merits of the case.
African Bank, being a financial services provider, makes both exempt supplies (the provision of credit) and taxable supplies (fees for taxable services). Under section 17(1) of the VAT Act, if a vendor acquires goods or services partly for taxable and partly for other non-taxable purposes (mixed purposes), only a portion of the VAT in respect thereof may be deducted as input tax. To determine the portion of VAT that qualifies as input tax, the extent to which the intended use is for taxable purposes must be established using an apportionment method approved by SARS. The apportionment ratio must thus be determined by using an approved apportionment method so that only a fair and reasonable proportion of VAT is deducted as input tax
In 2020 African Bank had requested the Commissioner to issue a VAT ruling allowing African Bank to continue using a specific transaction-based apportionment method to determine its VAT apportionment ratio. It sought confirmation from the Commissioner that African Bank may continue to apply the transaction-based method as set out in its previous ruling dated 12 August 2019, with certain modifications. The Commissioner declined this request and instead issued a substantially different ruling. It was argued by counsel for African Bank that this had the effect of declining the bank’s request and approving an alternative method not sought by African Bank. Consequently, African Bank objected, and when the objection was disallowed, it appealed to the Tax Court. In the appeal, African Bank requested that the ruling be altered to one approving the alternative method of apportionment requested by it. The Commissioner opposed the appeal. Before the hearing of the appeal, the Commissioner sought and obtained leave from the Tax Court to amend its rule 31 statement by introducing the special plea challenging the Tax Court’s jurisdiction to hear the appeal.
The Commissioner raised a special plea, arguing that the decision did not constitute a “refusal” under section 32(1)(a)(iv) of the VAT Act, and therefore was not subject to objection and appeal. The Tax Court dismissed this plea, and the Commissioner appealed to the SCA.
Before the Tax Court could hear the case, SARS challenged the court’s jurisdiction. SARS argued that since it had approved a method, albeit not the one requested, there was no “refusal” and thus no jurisdiction for the Tax Court to hear the appeal. African Bank contended that the
Commissioner’s failure to approve the specific method requested amounted to a refusal under the VAT Act.
The central issue for determination by the SCA was whether Commissioners decision to approve an alternate method of apportionment under section 17(1) of the VAT Act constituted a “refusal to approve a method for determining the ratio” as contemplated in section 32(1)(a)(iv) of the VAT Act, and whether such refusal triggered the taxpayer’s right to object and appeal under the Tax Administration Act 28 of 2011 (TA Act).
The Tax Court dismissed SARS’s special plea challenging its jurisdiction. On appeal, the SCA upheld this decision, emphasising a purposive interpretation of the legislation. The SCA rejected the Commissioner’s narrow, literal interpretation of “refusal” and emphasised that legislation must be interpreted in context and with regard to its purpose, which in this case was to provide remedies to aggrieved taxpayers. The SCA concluded that the Commissioner’s issuance of an alternative method not requested by African Bank effectively amounted to a refusal to approve the method sought by African Bank. This refusal fell squarely within the scope of section 32(1)(a)(iv) of the VAT Act, thus triggering the taxpayer’s right to object and appeal. The SCA warned that the narrow and literal interpretation of “refusal” within the context of section 32(1)(a)(vi) would lead to fragmented adjudication, prolonging disputes and an inefficient use of judicial resources. Furthermore, it would undermine the remedial purpose of section 32(1)(a)(iv), depriving vendors of their right to challenge decisions that materially affect their tax liabilities.
The SCA dismissed the appeal with costs, including the costs of two counsel.
This judgment reinforces the principle that tax legislation must be interpreted purposively, in a manner that upholds taxpayer rights and ensures access to fair dispute resolution mechanisms. It also clarifies the scope of the Tax Court’s jurisdiction in VAT-related disputes, particularly concerning apportionment rulings.
The full judgment can be accessed here.
Liability date to charge and collect VAT by a vendor
An entity that is conducting a business in South Africa and supplying goods or services regularly, may need to register for VAT. Whether you are a local company or a foreign e-commerce provider supplying electronic services to South African customers, you may be regarded as carrying on an “enterprise” if you are consistently making sales for payment, even if you are not earning a profit. Consequently, these entities may be required to register as VAT vendors. A vendor includes a person that is registered for VAT as well as a person that has not registered for VAT but is required, under the VAT Act, to do so.
A business making more than R1 million in taxable supplies in any 12-month period is liable to register for VAT. If you expect to exceed the R1 million threshold due to a contractual arrangement, you must register from the start of the month when the 12-month period begins. Registration as a result of exceeding the R1 million threshold as per this paragraph is known as compulsory registration.
An entity carrying on an enterprise can also choose to voluntarily register for VAT if it meets certain conditions even if sales or fees (turnover) earned from making taxable supplies are less than R1 million. However, such a person is not a vendor for VAT purposes until confirmation of registration is received from the Commissioner and therefore has no responsibilities of a vendor until registration is confirmed.
Once you meet the compulsory registration threshold, you are considered a vendor from the date you first became liable to register, subject to confirmation by the Commissioner. In certain instances, the Commissioner may determine that a person will be regarded as a vendor from a later date if it is considered equitable and after careful consideration of the circumstances of that person.
An application for VAT registration must be made within 21 business days of becoming liable to register. SARS usually processes applications within 21 business days, though sometimes SARS will issue a VAT number almost immediately if there are no complications or risks.
A common question is whether you should start charging VAT on your invoices while you’re waiting for your VAT registration to be confirmed. Although the VAT Act does not contain any specific transitional provisions for the period between the liability date and confirmation of registration, a vendor is still required to charge and collect VAT on any supplies made from the liability date. The timing of when a supply is made is determined by the rules in section 9 of the VAT Act. Any price charged for a taxable supply of goods or services from the liability date is deemed to include VAT, even if not explicitly stated. Similarly, a vendor is also required to show VAT-inclusive prices for any taxable supplies of goods or services in advertisements or quotes or alternatively must indicate the price both with and without VAT in such advertisement or quotation, from the liability date even if registration is pending. This is subject to sections 67 and 67A of the VAT Act.
Goods or services supplied under existing contracts entered into prior to liability date
Section 67 relates to, amongst others, the supply of goods or services under an existing ongoing contract or agreement that was concluded before becoming liable to register for VAT, if the price offered and accepted did not attract any VAT. Therefore, if you have ongoing contracts concluded before you were required to register for VAT, you still need to account for VAT on supplies made after the liability date, according to the normal time of supply rules but the VAT amount to be charged and recovered from the recipient will be determined based on the rules under that section. A vendor is generally permitted, under section 67 to increase the price to include VAT, subject to certain exceptions. This will apply even if the vendor is awaiting confirmation of registration from SARS. See the Frequently Asked Questions: Increase in the VAT rate from 1 April 2018 for more information in this regard.
Goods delivered or services rendered prior to or over periods spanning the liability date
If goods or services were provided before the liability date or over a period that spans the liability date, section 67A applies. If the rules under section 67 apply, the vendor must still account for output tax according to the normal time of supply rules, but the VAT amount to be charged and collected will be determined under the specific rules set out in that section. Section 67A generally deems certain supplies rendered before the liability date not to be subject to VAT, although the time of supply is determined under section 9 to fall on or after the liability date, subject to certain exceptions. The rules apply even if the vendor is awaiting confirmation of registration from SARS. See the Frequently Asked Questions: Increase in the VAT rate from 1 April 2018 for more information in this regard.
Tax invoices
Section 20 of the VAT Act requires a “registered vendor” to issue a tax invoice and therefore a vendor cannot issue tax invoices for taxable supplies until registration is confirmed by SARS. As a result, a supplier will not be considered to be in contravention of the provisions of section 20 of the VAT Act for not being able to issue tax invoices accordingly until registration is confirmed. However, vendors should issue the tax invoices that would have been required under section 20 as soon as possible after the registration has been confirmed by SARS. Customers or recipients of these supplies, that are vendors, will require these tax invoices to deduct the VAT charged on the supply as input tax.
Conclusion
Vendors that have not yet applied for VAT registration or with pending registration are obliged to understand their obligations from liability date, not just from the registration confirmation date. The obligation to levy and collect VAT by a vendor starts from the liability date, not when registration is officially confirmed, unless those two dates coincide. Vendors should therefore explain to their customers why VAT is charged from the liability date, why tax invoices cannot be issued until registration is confirmed, and that these tax invoices will be issued as soon as such confirmation is received, particularly when it is requested by the customer.
Publications
Since the last issue of VAT Connect, the following documents impacting on VAT have been published on the SARS website (Refer to the Legal Counsel page and navigate to the respective subpages):
Guides
- Tax Guide for Small Businesses (2024/2025) – Published on 26 August 2025
- Taxation in South Africa 2025 – Published on 26 August 2025
Disclaimer
VAT Connect is an information guide and not an “official publication” as defined in section 1 of the TA Act and accordingly does not create a practice generally prevailing under section 5 of that Act. It is also not a binding general ruling (BGR) under section 89 of Chapter 7 of the TA Act nor a ruling under section 41B of the VAT Act. For general enquiries regarding VAT call the SARS Contact Centre on 0800 00 7277. Should there be any aspects relating to VAT on which a specific VAT ruling is required, you may apply for a ruling by completing form VAT301 and sending it together with all the necessary information to SARS by facsimile on +27 86 540 9390 or by e-mail to [email protected]. Refer also to the Quick Reference Guide on VAT Ruling Application Procedure for more details on how to apply for a ruling.
