SECTION 74(2) OF THE VALUE-ADDED TAX ACT, 1991 (ACT NO. 89 OF 1991)
The National Treasury and the South African Revenue Service (SARS) published, for public comment, the draft amendments to the Regulations on the Domestic Reverse Charge (DRC) relating to valuable metal, issued in terms of section 74(2) of the Value-Added Tax Act, 1991 (Act no. 89 of 1991) (the Draft DRC Regulations) as well as the Draft Explanatory Memorandum (the Draft EM).
The purpose of these proposed amendments is to enhance the efficacy of the VAT legislation on valuable metal transactions by clarifying the definition of “residue” and the 1% gold content rule (the de minimis rule).
National Treasury and SARS invite comments in writing on the draft regulations by close of business on 30 June 2026.
The Domestic Reverse Charge (DRC) is an anti-abuse measure implemented by SARS to curb VAT refund fraud in the precious metals industry. Under the DRC, the liability to account for and pay VAT on the supply of valuable metals shifts from the supplier to the recipient (buyer).
BACKGROUND
On 8 June 2022, the government gazetted the regulations on domestic reverse charge relating to valuable metal (“the DRC Regulations”), issued in terms of section 74(2) of the Value-Added Tax Act, 1991 (Act 89 of 1991) (“the VAT Act”), which was effective from 1 July 2022. The aim of the DRC 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. The government introduced further amendments to the DRC Regulations effective 01
January 2024 and 1 April 2025, respectively, to curb further abuse, as some taxpayers in this space became more creative in their anti-avoidance schemes, and to deal with certain practical difficulties experienced by the affected industries.
REASONS FOR CHANGE
With effect from 1 January 2024, the term “residue” in regulation 2 of the DRC Regulations is limited to residue derived from or incidental to a mining operation due to concerns that the general inclusion of waste was too broad. In addition, a 1% rule was introduced, as the definition of “valuable metal” was also deemed to be too broad in including all gold-bearing goods supplied in the prescribed forms, notwithstanding the gold content. It came to the government’s attention that the 1% rule created the opportunity to obtain undue VAT refunds from SARS, as certain supplies of valuable metal are excluded from the ambit of the DRC Regulations, for example, unprocessed minerals containing gold, such as tailings and waste rock. It also had the unintended consequence of still excluding the “holders” who were intended to be included in the regulations by the removal of supplies made by these entities from the exclusions under the definition of “valuable metal”.
The purpose of the “de minimis rule” or “1% content rule” was to exclude supplies in which an insubstantial amount of gold could be included in such supply but where the supply of gold was incidental.
PROPOSAL
Based on the above, it is proposed that the regulations be amended to address these issues. As such, the industries in question are now specifically listed in the de minimis exclusion under “valuable metal”.
It is envisaged that the draft amendments to the DRC Regulations will come into effect on 1 August 2026.
Definitions
- In these Regulations, “the Regulations” means the regulations published by Notice No. R. 2140 in Government Gazette No. 46512 of 8 June 2022.
Amendment of regulation 1 of the regulations. 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]. ”; and
(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, sheet, tube, strip, rod, residue, or similar forms, containing gold, including any ancillary goods or services, but does not include supplies:
(a) …
(b) contemplated in section 11(1)(f), (k), or (m) of the Act;
(c) of valuable metal containing less than 1 per cent gold by gross weight from the following industries: medical, electronics, dentistry, automotive, defence and aerospace industries, provided that any gold recycled from any of these industries be used or processed within these industries; or
(d) jewellery plated with gold where the gold is present as a minor constituent only. ”.
A previous article was published in 2022 with amendments relevant at that moment in time. Both articles should be read for the sake of clarity. Pay particular attention to the definitions “residue” and “valuable metal” mentioned in 2022 and now again in 2026. The latest definition(s) have been expanded in both cases.
The previous article can be accessed here: https://fincor.co.za/amendments-to-regulations-on-the-domestic-reverse-charge-relating-to-valuable-metal/
SARS also published a FAQ for this topic, which can be accessed here: https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-VAT-G18-FAQs-on-Domestic-Reverse-Charge-Regulations.pdf
For those interested in prior feedback from the local industry, commentary from SAICA is accessible here: https://saicawebprstorage.blob.core.windows.net/uploads/resources/SAICA_submission_VAT_Domestic_Reverse_Charge_on_Valuable_metals.pdf
Failure to apply the domestic reverse charge on supplies of valuable metal will result in the supplier and purchaser (both are VAT-registered vendors) being held jointly and severally liable for any VAT loss suffered by the fiscus in this regard.