VAT On Bullion Gold: Zero-rating To Be Repealed

The Minister of Finance presented the 2026 National Budget on Wednesday, 25 February 2026. As part of the tax proposals contained in Annexure C to the 2026 Budget Review, National Treasury has proposed that section 11(1)(f) of the Value-Added Tax Act, 1991 ("VAT Act") be repealed.

Section 11(1)(f) currently provides for the zero-rating (imposition of VAT at a rate of 0%) of gold supplied in certain prescribed forms to the recipients specified in this subsection, being the South African Reserve Bank ("SARB"), the South African Mint Company (Proprietary) Limited ("SA Mint") and South African registered banks ("SA Banks").

This subsection enables SARB, SA Mint and SA Banks to acquire gold bullion VAT free in South Africa (i.e., without an actual or residual VAT cost to them). The prescribed forms to which section 11(1)(f) applies include gold in the form of bars (typical investment grade gold bullion), ingots and blank coins. The latter form is used by SA Mint to produce the iconic Krugerrand bullion coin in conjunction with Rand Refinery (Proprietary) Limited ("Rand Refinery").

If section 11(1)(f) is repealed, the domestic supply of gold bullion to SARB, SA Mint and SA Banks will be subject to VAT at the standard rate (currently 15%). This will increase the cost to them of acquiring such gold in the South African market and will have other serious consequences for these entities as highlighted below.

Tax proposal to repeal s 11(1)(f)

In the Budget Review, National Treasury alluded thereto that the phrase "which has not undergone any manufacturing process other than the refining thereof or the manufacture or production of such [specified forms of gold]" contained in section 11(1)(f) renders this subsection inoperable in practice. Reference was made to the manner in which gold is pooled by refineries from various primary and secondary gold sources (e.g., low-grade by-products, recycled bullion, previously manufactured gold from jewellery, coins and dental alloys).

National Treasury stated that it is complex to trace or isolate unprocessed, primary-source gold, and the refined product will likely have both components of primary and secondary gold that have gone through the process of manufacturing. This results in suppliers not being able to comply with section 11(1)(f) of the VAT Act and the South African Revenue Service ("SARS") must follow protracted audit procedures to confirm the validity of the application of the zero-rating. It is therefore proposed that section 11(1)(f) of the VAT Act be repealed.

Surprising turn of events

The sudden proposal by National Treasury to repeal section 11(1)(f) came as a surprise considering that the correct interpretation of this subsection is currently before the Constitutional Court for determination in the matter of Lueven Metals (Pty) Limited v CSARS (CCT 320/23). This case was heard by the Court as recently as 13 November 2025 and judgment is currently awaited. Even more astonishing is the fact that this case is centred around the exact phrase in section 11(1)(f) which National Treasury has now indicated as the reason for the repeal of the subsection.

Lueven Metals is seeking a declaratory order to the effect that gold originating from secondary sources (i.e., previously manufactured, or refined recycled gold, supplied in one of the prescribed forms) are not excluded from being zero-rated under this subsection. SARS, on the other hand, has persisted with a literalist interpretation that only gold originating from primary sources (e.g., newly mined gold) qualifies to be zero-rated under section 11(1)(f).

Taken at face value, this provision zero rates: a supply of gold, in any one of the eight prescribed forms, to one of the three listed recipients. This accords with the Explanatory Memorandum on the VAT Bill, 1991 (which later became the VAT Act), and which provides simply that: "The supply of gold in certain forms to the Reserve Bank, the South African Mint or a registered deposit-taking institution [later amended to "bank"] is zero rated under clause 11(1)(f)". From a policy perspective, no mention was made of the gold's origin, only of its state (i.e., form).

The Lueven Metals case involves an important question of law yet to be determined, especially in light of the dearth of legal authority and caselaw on the interpretation of section 11(1)(f) of the VAT Act. The proposed repeal of this subsection, and the reason(s) therefor expressed by National Treasury in the Budget Review, is therefore unexpected and appears to be premature.

Significant policy change

The proposed repeal of this subsection marks a significant policy change. Besides textual amendments in 1992 (to add "black coins" to the list of prescribed forms to which the subsection applies) and 1994 (to replace the term "deposit-taking institution" with "bank"), section 11(1)(f) has not ever been amended. The policy objective driving the proposed repeal is therefore unclear.

The sudden unexplained repeal will create significant policy uncertainty, misalignment with international standards and will be largely distortive. In particular:

• No mischief has been alleged: National Treasury (or SARS) has not mentioned, nor implied, any mischief they seek to address through the proposed repeal of section 11(1)(f). Government has consistently expressed grave concerns regarding the scale of VAT refund fraud alleged to occur in the second-hand gold industry, involving the supply of illicit gold and the claiming of unlawful VAT refunds based on fabricated documents. However, no mention was made in National Treasury's budget proposal of VAT refund fraud, or any illicit supplies in the South African gold supply chain(s), as informing the proposed repeal.
• Misalignment with global standards: Globally, investment grade gold is recognised as a financial asset, not a consumption good, with leading jurisdictions (e.g., European Union, United Kingdom, United Arab Emirates) treating it as a financial instrument to prevent market distortions. The proposed standard-rating risks isolating South Africa from global best practice and undermining its highly developed gold infrastructure, including Rand Refinery, a globally recognised and accredited refiner on the Good Delivery List of the London Bullion Market Association ("LBMA").
• Origin of gold was never understood to be a condition of zero-rating under section 11(1)(f): SARS' Interpretation Note No. 31 (Issue 4, in effect since 9 March 2016) prescribes the documentary requirements for zero-rating and requires only a "tax invoice" as documentary proof under this subsection. Besides the Lueven Metals case, the application of section 11(1)(f) in the context of co-mingled gold (gold derived from primary and secondary sources), has not previously been in contention in our courts.
• Zero-rating benefits the purchaser: VAT is a consumption-based tax, and the final consumer (purchaser) bears the burden of the tax. Section 11(1)(f) affords zero-rating only to SARB, SA Mint and SA Banks. The subsection does not apply to any other type of purchaser. The proposed repeal of section 11(1)(f) will disadvantage – only – these purchasers.
• Section 11(1)(f) does not serve the supplier: VAT registered suppliers supplying gold are lawfully entitled to claim input tax deductions for VAT incurred on their expenses, irrespective of whether their gold sales are taxable at a VAT rate of 15% or 0%. Any repeal of section 11(1)(f) will not affect the supplier's VAT refund claims.
• Distortion of distribution channels: In the Lueven Metals case it is SARS' (unproven) contention that the purpose of section 11(1)(f) is to provide the mining industry with a favourable VAT regime. Mines are currently able to zero-rate their gold sales on an export basis under section 11(1)(a) of the VAT Act, or by selling the gold locally to SARB, SA Mint or SA Banks under section 11(1)(f). Any repeal of section 11(1)(f) will distort consumer preferences (e.g., whether to buy/sell locally or offshore) and will offend the neutrality principle of the South African VAT system.
• Gold is a finite natural resource: Section 11(1)(f) expressly permits refining and thus promotes recycling of gold derived from secondary sources. Properly construed, section 11(1)(f) is not an exclusionary provision.

Severe implications for the SARB, SA Mint and SA Banks

The tax proposal to repeal section 11(1)(f) is expected to have serious cost implications, cashflow and other administrative consequences for the beneficiaries of the current zero-rating dispensation, being SARB, SA Mint and SA Banks, to include:

• Increased cost of acquiring domestic gold: The repeal of section 11(1)(f) will remove zero-rating of bullion gold supplied to SARB, SA Mint and SA Banks. The gold will be 15% more expensive on account of VAT, and such additional cost would need to be funded.
• Residual VAT cost: Depending on the (taxable or exempt/non-taxable) purposes for which SARB, SA Mint and SA Banks acquire their gold, they may not be able to claim a full input tax deduction in respect of the VAT (at 15%) incurred. Any unclaimed residual VAT will be a final cost to these purchasers and give rise to cash flow implications. This will particularly apply when gold bullion is acquired for investment purposes or held as reserves.
• VAT cascading: Residual VAT is typically passed on to the end-customer in the form of inflated sales prices. This gives rise to VAT cascading (i.e., VAT at 15% is levied on the VAT cost that is embedded in the sales price or service fee). Financial services (including gold-backed investment products) will be more expensive and thus less accessible. Customers could seek to acquire these products more competitively offshore.
• VAT domestic reverse charge: South Africa implemented a domestic VAT reverse charge mechanism with effect from 1 June 2022 (the so-called "DRC Regulations"). The DRC Regulations regulate the VAT reporting obligations of parties transacting in gold-bearing material existing in substantially the same gold forms as that prescribed by section 11(1)(f). The DRC Regulations do not apply to zero-rated transactions, and a specific carve-out applies to gold falling under section 11(1)(f). If section 11(1)(f) is repealed, SARB, SA Mint and SA Banks will be required to self-assess (reverse charge) VAT at 15% on their domestic gold purchases, and additional reporting and administrative requirements apply. It should be noted that the exclusion for valuable metal containing less than 1% of gold in gross weight (the "1% threshold exclusion") will not apply as the purity of gold bullion is typically at or above 99.5%.

These concerns are not new and were raised previously in our previous article, shortly after judgment was handed down against the taxpayer in the court a quo in Lueven Metals (Pty) Ltd v CSARS (31356/2021) [2022] ZAGPPHC 325 (19 May 2022), and shortly before the implementation of the VAT domestic reverse charge on gold-containing material came into effect on 8 June 2022.

Where to from here?

Section 11(1)(f) contains a very specific, narrow list of beneficiaries (being the SARB, SA Mint and SA Banks), and only they stand to lose the benefit of acquiring bullion grade gold VAT free in the domestic market should this subsection be repealed.

This subsection has served the gold industry and SARB, SA Mint and SA Banks well since VAT was introduced in 1991, and there have been no substantial amendments to this provision in over three decades. If there are concerns about the practical application of the subsection, properly construed and grounded by sound policy intent, the wording should rather be refined to remove any ambiguities.

This would be more appropriate and requires careful consideration to preserve zero-rating for the intended beneficiaries. It is also prudent to await the benefit of the Constitutional Court's judgment on the correct interpretation of section 11(1)(f) as this will undoubtedly assist to inform policy decisions on the future of this subsection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.