VAT AMENDMENTS PROPOSED TO STRENGTHEN DOMESTIC REVERSE CHARGE RULES FOR VALUABLE METALS

The National Treasury and the South African Revenue Service (SARS) have published draft amendments to the Regulations on the Domestic Reverse Charge (DRC) relating to valuable metals under section 74(2) of the Value-Added Tax Act 89 of 1991. The proposed amendments were released for public comment on 3 June 2026, with stakeholders invited to submit written comments by 30 June 2026. If approved, the amendments are expected to come into effect on 1 August 2026.

The DRC mechanism was first introduced on 1 July 2022 as an anti-avoidance measure aimed at combating VAT fraud and preventing the claiming of undue VAT refunds in the valuable metals industry. The regulations shifted the obligation to account for and pay VAT from the supplier to the recipient in certain transactions involving valuable metals, particularly those containing gold. The measure was introduced in response to widespread abuses and criminal activities within the sector that exploited weaknesses in the VAT system.

Since its implementation, the DRC Regulations have undergone several amendments. Significant changes were introduced on 1 January 2024 and again on 1 April 2025 to address practical challenges and emerging avoidance schemes. According to National Treasury, certain taxpayers continued to devise increasingly sophisticated methods to circumvent the regulations, necessitating further refinement of the legislative framework.

The latest draft amendments focus primarily on two aspects of the DRC Regulations: the definition of “residue” and the application of the 1% gold content threshold, commonly referred to as the de minimis rule.

The de minimis rule was introduced in January 2024 to exclude transactions involving only incidental or insubstantial amounts of gold from the ambit of the DRC Regulations. The intention was to prevent unnecessary compliance obligations in transactions where the presence of gold was merely incidental to the primary substance being supplied. However, National Treasury has identified unintended consequences arising from the rule’s application.

According to the Draft Explanatory Memorandum, the current 1% threshold has created opportunities for certain vendors to obtain undue VAT refunds from SARS by structuring transactions to fall outside the DRC regime. Furthermore, the rule has inadvertently excluded certain “holders” and other participants whom the regulations were specifically intended to capture following earlier amendments.

To address these concerns, the draft amendments propose a more targeted approach by specifically identifying the industries and transactions that qualify for exclusion under the de minimis rule. This is intended to ensure that the exemption applies only where gold content is genuinely incidental, while preventing abuse and strengthening the effectiveness of the DRC framework.

The proposed amendments also seek to provide greater clarity regarding the meaning of “residue”, which was narrowed in 2024 to include only residue derived from or incidental to mining operations. Clarifying this definition is expected to reduce uncertainty and improve compliance across affected industries.

Businesses operating in the precious metals, mining, recycling, and related sectors should carefully review the proposed amendments and assess the potential impact on their VAT reporting and compliance processes. Tax practitioners and advisors should likewise familiarise themselves with the proposed changes to ensure that clients remain compliant with the evolving DRC regime.

The publication of these draft amendments reflects government’s continued commitment to protecting the integrity of South Africa’s VAT system while balancing the need for practical and effective tax administration in high-risk industries.

By Carlé Kriedemann

(Candidate Attorney)

30 June 2026

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