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  • Tag Archive: South Africa

    1. EnviroServ ‘lays waste’ to SARS in Supreme Court of Appeal

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      EnviroServ tax case – Introduction

      In a notable judgement delivered on 18 December, EnviroServ Waste Management secured a significant victory in the Supreme Court of Appeal (SCA) against the South African Revenue Service (SARS). 

      This case, which revolved around the tax treatment of hazardous waste processing at landfill sites, marked a rare win for the taxpayer, primarily on tax technical grounds rather than procedural issues.

      The Essence of the Victory

      The SCA’s decision in EnviroServ Waste Management’s case hinged on the interpretation of “ancillary” versus “indispensable” activities in manufacturing processes. 

      This distinction is critical, as it affects the tax allowance on assets – a striking difference between a 40/20/20% allowance and a mere 5% annual allowance. 

      The case judgment can be found here:

      180media.phttps://www.saflii.org/za/cases/ZASCA/2023/180media.pdfdf (saflii.org)

      Key Observations

      The Court’s emphasis was on Section 37B, which SARS contended applied to EnviroServ’s activities. 

      However, the legislative intent alone wasn’t sufficient. The Court underscored the importance of the actual words used in the Act, which, in this instance, favored the taxpayer’s interpretation.

      The judgment reminds us that one should not accept a singular interpretation of legislative wording. Precedent plays a crucial role, as evidenced by the SCA’s reliance on existing rulings defining “plant” to include permanent structures attached to the soil, subject to a functionality test.

      Interestingly, the Court noted that falling under the USPs’ provisions doesn’t automatically result in penalties. SARS must prove actual prejudice, dismissing the notion of “automatic prejudice”.

      EnviroServ’s Argument and SCA’s Ruling

      EnviroServ argued that the excavation sites, or “cells”, where waste is chemically treated, should be classified as “plant” or “machinery”. 

      This classification is pivotal for depreciation claims, significantly impacting the rate at which these assets can be depreciated.

      The SCA, led by Acting President Justice Nambitha Dambuza, concurred with EnviroServ. Contrary to SARS’s contention, the cells were not mere waste disposal assets or “buildings” as per Section 13 of the ITA. 

      The SCA recognized that the primary function of these cells was the conversion of hazardous waste into non-hazardous material, aligning with EnviroServ’s business purpose.

      EnviroServ tax case – Conclusion

      This ruling not only provides clarity and closure to a protracted tax dispute for EnviroServ but also sets a significant precedent in the realm of tax law, particularly concerning the classification of assets for tax purposes.

      The judgment is a reminder of the complexities inherent in tax legislation and the importance of nuanced interpretations.

      Final thoughts

      If you have any queries about the EnviroServ tax case, or any tax issues in South Africa, then please get in touch.

    2. South Africa Crypto Tax

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      South Africa Crypto Tax – Introduction

       

      Blockchain technology and the intersection with traditional financial systems has given revenue authorities a digital puzzle to solve.

       

      Tax compliance in this context involves correctly determining taxable amounts, adhering to disclosure requirements, and ensuring timely tax payments.

       

      So, how do we approach this crypto Rubik’s cube?

       

      The approach of SARS

       

      The South African Revenue Service (SARS) has been treating gains and losses from crypto-investments as ordinary transactions under existing tax rules. 

       

      In 2018, cryptocurrencies were included in the definition of ‘financial instrument’ in the Income Tax Act. 

       

      In 2020, this definition was expanded to ‘crypto asset,’ broadening the range of applicable provisions. 

       

      Despite this, applying these tax rules in the crypto-investment space can be complex and requires professional expertise.

       

      Penalties for non-compliance

       

      SARS has the authority to impose understatement penalties ranging from 0% to 200% for incorrect tax determinations. 

       

      To enforce tax compliance, SARS relies on taxpayers to disclose crypto-related gains and losses. 

       

      If a taxpayer refuses to disclose voluntarily, SARS can use its information-gathering powers to compel disclosure from taxpayers, advisors, and third-party service providers.

       

      Transparency and tracking

       

      Clearly, for revenue authorities around the world to apply relevant tax laws, they must first be aware of the transactions. 

       

      This can be challenging as blockchain addresses and wallet IDs are necessary to assess on-chain digital trails. 

       

      Off-chain audits involve leveraging information from digital currency exchanges and peer-to-peer facilitators. 

       

      Revenue authorities are also using information from other authorities through data exchange agreements.

       

      South Africa Crypto Tax – Conclusion

       

      Tax compliance in the crypto space carries significant risks, and external tax professionals play a crucial role in safeguarding returns from unnecessary tax costs.

       

      If you have any queries about South Africa Crypto Tax, South Africa taxes, or tax matters in general then please get in touch.