The Tax Court has refused SARS's application to amend its rule 31 statement in the ETI test case that will determine the outcome of ETI disputes faced by over 400 employers. The judgment raises questions about who bears the cost when SARS causes delays.
The test case
SARS began issuing additional assessments against employers claiming the employment tax incentive (ETI) in alleged abusive schemes around July 2021. The volume of disputes led SARS to designate Taxpayer TAT (IT 46233) as a test case under section 106(6) of the Tax Administration Act (TAA). 408 other taxpayers agreed to stay their disputes and be bound by the outcome of the test case.
The appellant in the test case, a tyre manufacturer, had implemented a skills development initiative. Individuals on limited duration contracts attended classes and completed assignments at a college. The employer arranged for the individuals to provide services to a third party to gain work experience. Remuneration was paid to the college by the employer for the training of these individuals.
SARS disallowed the ETI claims on the basis that the individuals did not "work" for the appellant and were not "remunerated" by the appellant as required by the ETI Act.
The amendment that failed
In February 2025, SARS sought to amend its rule 31 statement to introduce new legal arguments. SARS proposed to interpret "work" with reference to the Occupational Health and Safety Act (OHSA). SARS also sought to argue that payment of tuition to the college did not constitute "remuneration".
Judge Mali refused the amendment in the interlocutory judgement handed down on 14 October 2025. The court held that the SARS proposed amendments constituted a novation of SARS's case – precisely what rule 31(3) of the Tax Court Rules prohibits.
It is submitted that the reasoning in the judgment is sound. The ETI Act is transformation legislation designed to incentivise employment of young work seekers. The OHSA is health and safety legislation concerned with protecting persons against workplace hazards. The policy rationale, protected interests, and regulatory context of these statutes are entirely distinct. To import OHSA's definition of "work" into the ETI Act would overlay the incentive with occupational health concepts the Legislature never contemplated.
When the Legislature wished to clarify ETI requirements, it did so expressly through amendments to the ETI Act in 2018 and 2022 and not by incorporation of definitions from unrelated statutes.
The court further emphasised the test case dimension. The 408 bound employers had agreed to be bound based on the originally pleaded case. They had not been given notice of the new statutory provisions. The court stated it would be "fundamentally unfair, not in the interest of administration of justice and potentially unconstitutional" to bind those taxpayers to an outcome based on grounds they had no opportunity to address.
The court further noted that a lot of time was lost due to SARS' tardiness and ordered SARS to pay costs on scale C, B, and A for three counsel.
The delay problem
The test case was initially set down for May 2024 but did not proceed due to delays by SARS. The rescheduled April 2025 hearing dates were used for the interlocutory application hearing rather than on the merits.
If SARS appeals the interlocutory judgment, further delays will follow. The hearing on the merits can only occur after the interlocutory dispute is finalised and the process for the hearing on the merits can begin. This means that hearing on the merits could only occur perhaps in 2027 (if SARS appeals). This would then be six years after the first additional assessments on the alleged schemes were issued by SARS around July 2021.
Interest accrues under section 187 of the TAA from the effective date until the debt is fully paid. For PAYE, the effective date is the 7th of the month following the month when remuneration was paid. Employers in stayed disputes continue to accrue interest liability even though SARS caused the delays.
Section 187(6) limits SARS's discretion to remit interest to circumstances involving disaster, civil disturbance, serious illness, or matters beyond the taxpayer's control. Whether SARS's delays or systemic backlogs qualify as circumstances beyond the taxpayer's control remains untested.
The human cost
The financial impact of the ETI disputes has been severe. Many employers now face mounting tax debts comprising disallowed ETI claims, 10% penalties, and years of accumulated interest. Some face exposures threatening the going concern of their businesses.
There are employers who participated in these schemes in good faith, often to support B-BBEE purposes and to contribute to policy initiatives to reduce youth unemployment. The President's YES Initiative itself supported placements at host employers where sponsoring employers could not generate sufficient positions internally.
SARS has always accepted these individuals as "employees" for UIF contributions and skills development levies. It has not accepted them as "employees" for ETI purposes in these ETI disputes.
These employers relied on service providers who marketed compliant structures which was supported by tax opinions. In many instances, those service providers failed to implement their legal obligations under service agreements. The employers now bear the full weight of disallowed claims with limited recourse against the service providers.
There also appears to be an interpretation shift since 2016 when SARS accepted that labour brokers could claim ETI even though the individuals worked at the premises of clients and not "directly" for the labour broker.
The pending test case also means that SARS's position for settlement is very limited, leaving employers unable to finalise or progress their disputes independently.
Administrative justice and achievement of policy
Section 195 of the Constitution requires public administration to be accountable, efficient, and development oriented. The Promotion of Administrative Justice Act gives effect to the right to administrative action that is lawful, reasonable, and procedurally fair.
Where dispute resolution is delayed for years through no fault of the taxpayer and interest accumulates throughout, questions arise whether these imperatives are being met. The Tax Ombud's findings on systemic non-compliance with dispute resolution timeframes add weight to these concerns.
Good faith employers are entitled to expect that if they are ultimately found non-compliant, the consequences will be proportionate to their culpability – not inflated by years of interest arising from an overburdened system they did not create and delays caused by SARS.
This prolonged uncertainty and continued accrual of interest liabilities is incompatible with the constitutional imperatives of accountable and efficient public administration.
