Abstract
The broad range of illegal mining activities in South Africa has resulted in adverse negative effects on the tax base of South Africa. In this study, focus is placed on the activities of second-hand dealers in claiming notional input Value-Added Tax (VAT) after illegally mined gold is bought from the zama zama’s. The second-hand dealer adds certain chemicals to the raw gold so that it appears as if the second-hand dealer purchased authentic jewellery. South Africa Revenue Services (SARS) has made several amendments to address a loophole in the VAT Act which gave rise to this fraudulent claiming of notional input VAT, specifically focusing on second-hand gold. In order to determine the role of the illegally mined gold, the selling thereof to second hand dealers and then the creation of false input invoices to claim input VAT on the gold, the author examines the amendments the legislator made to address the illegal exploitation of the notional input VAT claims by the second-hand dealers. These fraudulent claims may have negative effects on the tax base of The Republic of South Africa, as large amounts of claimed VAT inputs are refunded to second-hand dealers. The study made use of primary as well secondary data in the form of legislation and other appropriate documents to explore the reason for and the effect of the amendments to the definition of second-hand goods in the VAT act on the different stakeholders. The study also aimed to conclude on the effectiveness of the most recent 2017/18 amendment. This study concluded that the first amendment to the second-hand definition in which gold was removed from the definition, had a vast negative impact on the second-hand industry. The second amendment was approved were gold was included in the second hand goods definition but the definition was changed to state that gold should stay in the same state or considerably the same state as it was received in, possibly addressing the loopholes in the VAT Act on second hand goods. The study in turn reflects that the current definition of second-hand gold had a favourable result in addressing the loopholes in the VAT Act despite there being shortcomings in the administrative aspects of claiming notional input.
M.Com. (South African and International Taxation)