One wrong move that could cost taxpayers millions

Tax experts warned that taxpayers should be careful when seeking a ruling from the South African Revenue Service (SARS), since this could lead to millions of rands in penalties if there are any compliance issues.

Tax Consulting South Africa’s Jashwin Baijoo explained that obtaining tax and legal certainty from SARS is often the prudent approach, which may be received as a ruling.

“In the normal course, the benefit derived from using a specialist tax attorney to obtain this certainty outweighs the costs involved, but imagine your advisor’s request costing you more than R39 million,” Baijoo said.

This happened to Assmang, a mining business in the Northern Cape, when its advisors, KPMG, approached SARS for a ruling, resulting in a robust compliance audit.

“Flowing from this, Assmang sought legal recourse, only to land with two adverse judgments, the last of which was handed down in the Supreme Court of Appeal (SCA) on 29 August 2025,” Baijoo said.

The final outcome was that Assmang’s appeal was dismissed with costs and compounded with a finding that failure to keep logbooks disentitles the company’s diesel refund claim.

Baijoo stressed that this SCA judgement in Assmang v the SARS Commissioner serves as a clear warning to taxpayers to ensure full compliance with tax legislation.

This judgment’s core focus was Assmang’s claim for diesel refunds. The primary dispute on appeal revolved around whether Assmang’s contracts with its mining service providers were on a “wet” or “dry” basis. This basis determines eligibility for the refunds under the Customs and Excise Act.

“The snowball which triggered the avalanche, even before the refunds were claimed, was that KPMG, on behalf of Assmang, approached SARS for a ruling on whether a diesel refund in respect of contactors could be claimed,” Baijoo explained.

“Being a prudent revenue authority, SARS detected a risky tax treatment strategy and proceeded to conduct a broader diesel refund audit.”

Upon completion of the audit and the imposition of interest and penalties, Assmang was stuck with the most expensive ruling request it could imagine, R39.57 million.

Two notable findings were made. First, the contracts were “wet”, meaning Assmang did not qualify for a rebate.

Another key shortcoming was the company’s record keeping, especially logbooks, which have clear legal requirements and for which “substantial compliance” is insufficient.

Having due regard for the grounds set forth in the judgment, Baijoo said the appeal was bound to fail.

Likewise, the legal muster to pass an intense SARS audit would not be met, which in the worst case can result in penalties of up to 200% of the corresponding tax liability.

SARS is clamping down

Baijoo explained that SARS’ Audit Team appears to strongly enforce the zero-tolerance policy for non-compliance.

Aiding their cause and easing the pressure of the job are the data-driven insights derived from AI use, including processing of taxpayer historic returns and logbooks, with absolute precision.

“In practice, we have seen a significant spike in SARS audits, which in most cases result in the audit being finalised with adjustments,” Baijoo explained.

This is due to taxpayers missing the taxman’s request for relevant material or their supporting documents not meeting SARS’ standards.

“SARS’ strategy to instil a sense of urgency and responsibility among taxpayers hinges on making non-compliance both hard and costly,” he warned.

“By detecting and addressing non-compliance rigorously, SARS aims to deter tax evasion and ensure that all taxpayers fulfil their obligations.”

Baijoo said this approach emphasises that no taxpayer, regardless of their economic standing, is beyond the reach of SARS’ compliance efforts.

Recent trends have also shown that SARS considers not just current compliance but also deep dives into historic risks of non-compliance.

In some cases, SARS even requests that taxpayers examine their crystal balls and provide income and expenditure estimates for future tax periods.

Baijoo advised that where taxpayers face a historic audit from SARS, it is imperative to ensure a timely response with all correct supporting documentation.

“We have seen in the market a number of ill-advised taxpayers seeking the correct counsel only after the fact and paying the price for it, such as when those additional assessments are issued post-audit finalisation,” he said.

“The nail in the coffin is always the understatement penalties, capping at a bank-breaking 200% of the capital taxes due.”