Amendments to regulations on the domestic reverse charge relating to valuable metal

July 2023 update

This article is an update of an article published on 28 June 2022 – “Regulations imposing a domestic reverse charge on valuable metals”.

Relevant Act(s)
VAT Act, 1991

National Treasury published a document on 31 July 2023 with draft amendments to the Regulations on Domestic Reverse Charge Relating to Valuable Metal. Comments must be submitted to the National Treasury depository at 2023AnnexCProp@treasury.gov.za; and, SARS at acollins@sars.gov.za by 31 August 2023. Additionally, SARS published an Explanatory Memorandum to DRC Amendments on 31 July 2023 too.

A VAT domestic reverse charge (DRC) on valuable metal was introduced in the Regulation published in Government Gazette 46512 on 8 June 2022. The DRC Regulations came into effect on 1 July 2022. The aim of these regulations was to foreclose schemes and malpractices to claim undue VAT refunds from SARS by vendors operating in the value chain relating to high-risk goods containing gold.

A few basic amendments have been proposed and are listed below.

Amendment of Regulation 1 of the Regulations

  1. Regulation 1 of the Regulations is hereby amended:

(a) by the substitution for the definition of “residue” of the following definition:

“residue” means any debris, discard, tailings, slimes, screening, slurry, waste rock, foundry sand, beneficiation plant waste or ash derived from or incidental to a mining operation by a “holder” as defined in section 1 of the Mining and Petroleum Resources Development Act, 2002 (Act No 28 of 2002) or the person contracted to such “holder” to carry on mining operations in respect of the mine where such “holder” carries on mining operations”

(b) by the substitution for the definition of “valuable metal” of the following definition:

“valuable metal” means, any goods in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, sponge, powder, granules, in a solution, residue or similar forms, containing gold, including any ancillary goods or services but does not include supplies:

(a) of goods produced from raw materials by any “holder” as defined in section 1 of the Mining and Petroleum Resources Development Act, 2002 (Act No 28 of 2002), or by any person contracted to such “holder” to carry on mining operations in
respect of the mine where such “holder’’ carries on mining operations;
(b) contemplated in section 11(1)(f), (k) or (m) of the Act;
(c) of valuable metal containing less than 1 per cent of gold in gross weight; or
(d) jewellery plated with gold where the gold is present as a minor constituent only.

Amendment of Regulation 2 of the Regulations

  1. Regulation 2 of the Regulations is hereby amended:

(a) by the substitution for paragraph (e) of the following paragraph:
(e) in addition to the requirements under section 21 of the Act, issue debit and credit notes subject to the further requirements stated in Regulation 5, unless the recipient, being a registered vendor, has been granted approval under section 21(4) of the Act to issue debit and credit notes;

(b) by the substitution for paragraph (f) of the following paragraph:
(f) in addition to the normal VAT record-keeping requirements, obtain, retain and maintain, as part of the VAT record-keeping requirements, a list of all supplies of valuable metal that are subject to the domestic reverse charge contemplated in these Regulations and the documentary evidence contemplated in subparagraph (a) and Regulation 3(a); and
(c) by the addition after paragraph (f) of the following paragraph:
(g) provide a full and proper description of the valuable metal as well as the percentage of the gold content contained within the valuable metal.

Amendment of Regulation 3 of the Regulations

  1. Regulation 3 of the Regulations is hereby amended by the substitution in paragraph (e) for subparagraph (iii) of the following subparagraph:
    (iii) full and proper description of the valuable metal;

Amendment of Regulation 8 of the Regulations

  1. Regulation 8 of the Regulations is hereby amended by the substitution for paragraph (c) of the following paragraph:
    (c) A registered vendor will be required to account for and pay VAT for transactions falling within the ambit of the Regulations commencing from the beginning of the tax period covering 1 August 2022.

Amendment of regulation 10 of the Regulations: Short title and commencement

  1. These Regulations are called the Domestic Reverse Charge Regulations and are deemed to have come into operation on 1 August 2022.

EXPLANATION OF THE PROPOSED AMENDMENTS

Regulation 1: Definitions

  1. Clarifying the definition of “Residue”

Currently, Regulation 1 defines “residue” to mean any debris, discard, tailings, slimes, screening, slurry, waste rock, foundry sand, beneficiation plant waste or ash. It came to the government’s attention that there was confusion in the industry as to whether this definition relates only to residue as a result of mining operations or whether it includes residue as a general concept. The proposed amendment clarifies that “residue” as envisaged relates to any debris, discard, tailings, slimes, screening, slurry, waste rock, foundry sand, beneficiation plant waste or ash as a result of a mining operation by a “holder” as defined in section 1 of the Mineral and Petroleum Resources Development Act (2002) (“MPRDA”) or the person contracted to such a “holder”, and not as a general concept.

  1. Clarifying the definition of “valuable metal”

Currently, Regulation 1 defines “valuable metal” to mean any goods containing gold in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, granules, or in a solution or residue or similar forms, including any ancillary goods or services. This definition excludes supplies of goods produced from raw materials by any holder as defined in section 1 of the MPRDA or by any person contracted to such holder to carry on mining operations at the mine where the holder carries on mining operations. It also excludes a supply of goods contemplated in section 11(1)(f), (k) or (m) of the VAT Act.

It came to the government’s attention that some vendors interpret the phrase “any goods containing gold in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, granules” to mean that the gold component must be in the prescribed forms, as opposed to goods containing gold supplied in the prescribed forms. The policy rationale for the proposed amendment is to provide clarity in this definition. It is further proposed that the definition of “valuable metal” is amended to include gold in the form of a sponge or powder, as these forms are included in the Precious Metals Act.

  1. Introducing a “de minimis” rule

The definition of “valuable metal” includes all goods containing gold in the prescribed forms, regardless of the gold content. This has unintended consequences where jewellery or other goods are gold plated with a thin layer of gold. The proposed amendments exclude the supply of valuable metal containing less than 1 per cent of gold in gross weight; and a supply of gold-plated jewellery where the gold is present as a minor constituent only. These amendments exclude the two supplies from the definition of “valuable metal”, which ultimately means that the DRC Regulations will not apply to those supplies (i.e., the normal VAT rules will apply).

Regulations 2 and 3: Clarifying the responsibilities of the recipient of valuable metal

In the DRC Regulations, the recipient of “valuable metal” is required to issue a statement to the supplier within 21 days of the end of the calendar month during which the tax has been accounted and paid for, detailing, amongst other things, the percentage of the gold content in the “valuable metal”. Recipients may not always be in a position to determine the gold content of the “valuable metal” supplied to them.

The proposed amendments to the Regulations transfer the responsibility for declaring the percentage of the gold content in a “valuable metal” supplied from the recipient to the supplier of the “valuable metal”.

Regulation 8: Clarifying the transitional measures

The regulations as gazetted allowed vendors a transitional period of one month, from 1 July 2022 to 1 August 2022, to comply with the requirements. This implied that registered vendors were required to account for and pay VAT in accordance with these regulations in respect of all qualifying transactions in the August 2022 tax period. It came to the government’s attention that some vendors did not fully understand the application of transitional measures. The proposed amendment seeks to provide clarity that the transitional measures require registered vendors to account for and pay VAT for transactions falling within the ambit of the regulations in the tax period covering 01 August 2022.

Regulation 10: Amendment of the effective date

As a consequence of the amendment of the transitional measures, it is proposed that the effective date of the regulations be amended to 01 August 2022.

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