The Constitutional Court has handed down a unanimous judgment that definitively settles the VAT treatment of gold supplied to the South African Reserve Bank (SARB), the South African Mint Company (SA Mint) and registered banks. The judgment confirms that the zero-rating benefit under section 11(1)(f) of the Value-Added Tax Act 89 of 1991 (the VAT Act) applies only to gold derived from newly mined sources and does not extend to recycled or second-hand gold. This represents a decisive victory for the South African Revenue Service (SARS).
The facts
Lueven Metals (Pty) Ltd (Lueven) trades in and refines precious metals. It is a registered Category C VAT vendor and purchases and resells second-hand gold, including scrap jewellery.
Lueven entered into an agreement with Absa Bank, a prescribed purchaser, to supply gold bars refined to a purity level of at least 99.5%. It deposited its less pure gold scrap and bars with Rand Refinery, which further refined gold bars to Absa. For several years, Lueven treated these supplies as zero-rated. Following an audit in 2021, SARS concluded that the second-hand gold acquired by Lueven had previously undergone manufacturing processes and therefore did not qualify for zero-rating under section 11(1)(f) of the VAT Act.
What section 11(1)(f) requires
The Constitutional Court confirmed that section 11(1)(f) imposes three requirements for a supply to qualify for zero-rating:
- The supply must be made to a prescribed purchaser, namely the SARB, the SA Mint or a registered bank;
- The gold must be supplied in one of the eight prescribed forms (bars, blank coins, ingots, buttons, wire, plate, granules or solution); and
- The gold must not have undergone any manufacturing process other than refining or the manufacture or production of one of the prescribed forms.
The Constitutional Court's decision
The appeal was dismissed unanimously. The court held that the gold supplied by Lueven originated from recycled sources, including second-hand jewellery and scrap gold. Before being supplied to a prescribed purchaser, the gold had undergone three stages: it had first been manufactured into its previous form; it was then refined; and finally, it was manufactured into one of the prescribed forms.
Accordingly, the gold had previously undergone manufacturing processes resulting in non-prescribed forms. Although refining removes the physical characteristics of the recycled gold's earlier form, it does not change the fact that the gold had already undergone a disqualifying manufacturing process. On the plain wording of section 11(1)(f), Lueven's supplies therefore did not qualify for zero-rating.
The court further held that a purposive interpretation of section 11(1)(f) did not clearly support either party's interpretation. The contextual considerations similarly did not favour Lueven, while the text of the provision clearly did. Lueven could not avoid the ordinary meaning of the section by relying on its underlying purpose.
Newly mined gold and the doré bar process — expressly confirmed
Importantly for mining clients, the court expressly confirmed that the standard doré bar process used by South African gold mines remains unaffected.
Gold mines typically cast gold into doré bars before depositing them with Rand Refinery. Doré bars are bars of relatively low purity produced following an initial refining and production process. The process from mined gold to doré bars involves only refining and the manufacture of bars, both of which are expressly permitted under section 11(1)(f).
The court further confirmed that nothing in section 11(1)(f) prevents a gold bar from being refined more than once. Accordingly, the zero-rating applicable to supplies of newly mined gold to prescribed purchasers remains intact.
Binding class rulings offer no protection
The binding class rulings relied upon by Lueven addressed the documentary difficulties arising from the commingling of gold at Rand Refinery, which prevents depositors from directly linking the gold deposited with the refined gold ultimately received.
The court confirmed that these rulings cannot be relied upon as a defence to SARS's position because they did not address the substantive question of what constitutes a disqualifying manufacturing or production process under section 11(1)(f).
Looking ahead — proposed repeal of section 11(1)(f)
Clients should also be aware of a significant legislative development.
The 2026 Budget Speech proposed the repeal of section 11(1)(f). Although this proposal has not yet been enacted and no legislative amendment has been passed, its implications would be significant.
If the repeal proceeds, supplies of gold to the SARB, the SA Mint and registered banks would become subject to VAT at the standard rate of 15%, eliminating the zero-rating benefit entirely, including for primary gold mining companies supplying newly mined gold.
This would fundamentally change the VAT treatment of the gold sector and warrants close monitoring. We will continue to keep clients informed as the legislative process progresses.
Key implications
For primary gold mining companies whose operations follow the standard mined-gold-to-doré-bar-to-refinery process, the judgment provides welcome certainty. The Constitutional Court has expressly confirmed that zero-rating for supplies to prescribed purchasers remains available.
For businesses dealing in recycled or second-hand gold, the position is now equally clear. Supplies to prescribed purchasers are subject to VAT at the standard rate of 15% and do not qualify for zero-rating. This also has important consequences for input tax claims relating to purchases of recycled gold, which should now be reassessed.
Where operations involve both newly mined and recycled gold, businesses should ensure that robust tracking and documentation systems are in place to segregate the two supply streams. Without adequate evidence, SARS may regard the entire supply as standard rated.
Looking ahead, should section 11(1)(f) ultimately be repealed, all supplies of gold to prescribed purchasers, including supplies by primary mining companies, would become standard-rated. Clients should begin considering the potential commercial and pricing implications of this proposal.
Recommended action
We recommend that clients:
- Review supply chains to determine whether recycled or second-hand gold forms part of their operations and assess whether previous VAT returns may require correction;
- Strengthen documentation to ensure that the provenance and processing history of all gold deposited with refiners can be clearly demonstrated and appropriately segregated;
- Reassess input tax claims relating to purchases of recycled gold in light of the judgment;
- Consider voluntary disclosure where supplies may previously have been incorrectly zero-rated, noting that early engagement with SARS under the Voluntary Disclosure Programme may mitigate penalties and interest; and
- Monitor legislative developments concerning the proposed repeal of section 11(1)(f) and assess the potential commercial impact on operations and pricing.
Please do not hesitate to contact us should you wish to discuss how this judgment, or the proposed legislative changes, may affect your specific circumstances.
