The second quarter of 2025 brought a notable mix of regulatory changes, significant court decisions, and new guidance from SARS. Johan Kotze, Tax Executive at Shepstone & Wylie Attorneys, has compiled this update covering key developments in Income Tax and VAT from April to June 2025. Whether you are an individual taxpayer, a business owner, a trust, or a financial services provider, there is something worth your attention.
The VAT Rate Reversal
Arguably the most newsworthy development of the quarter was the reversal of the proposed VAT rate increase. After the 2025/26 Budget announced a 0.5% increase, extensive consultations with political parties and parliamentary committees led the Minister of Finance to abandon the proposal. From 1 May 2025, the VAT rate remains at 15%.
The decision comes at a fiscal cost. National Treasury estimates a shortfall of approximately R75 billion over the medium term. As a result, the Appropriation Bill and Division of Revenue Bill were both withdrawn and will be reintroduced with expenditure adjustments. The proposed additional zero-rating of essential food items, which was to cushion lower-income households, also falls away. Businesses that had started preparing for the VAT increase should confirm their systems and pricing reflect the status quo.
VAT Regulatory Changes Effective 1 April 2025
Several important VAT regulatory amendments came into effect at the start of the quarter.
Electronic services: A new business-to-business exclusion means that non-resident suppliers providing electronic services exclusively to registered South African VAT vendors are no longer required to register for VAT here. This reduces the administrative burden on offshore suppliers with no physical presence in South Africa, in line with OECD recommendations. Suppliers that serve both vendors and non-vendors remain subject to the full regime. New definitions of “content” and “telecommunications services” were also introduced, and intermediaries now bear joint and several liability with their principals for VAT on supplies made through their platforms.
Domestic reverse charge on valuable metal: Amendments to the domestic reverse charge regulations remove an exclusion in the definition of “valuable metal” that had been exploited to shift VAT fraud schemes into the primary gold sector, closing a significant loophole.
Casino table games: New regulations provide a formal VAT accounting method for casino table games of chance, effective 1 January 2025. Casinos may now account for VAT on gross gaming revenue for table games, replacing the previous informal arrangement under a binding general ruling.
Interest Rates
Interest rates on outstanding taxes continued to ease. The rate dropped to 11.00% from 1 May 2025. The official rate of interest, used to calculate fringe benefits on low or interest-free loans from employers, decreased to 8.25% from 1 June 2025, linked to the Reserve Bank’s repurchase rate.
Tax Cases: Seven Significant Decisions
This was an exceptionally busy quarter for the courts, with seven reported cases covering a wide range of issues.
Thistle Trust v SARS reached the Constitutional Court and produced a landmark ruling on the taxation of capital gains in multi-tiered trust structures. The court held that capital gains are taxable in the hands of the first beneficiary trust and do not flow through to the ultimate individual beneficiaries. This overturns the position many trust structures relied upon and has significant implications for existing tiered trust arrangements. The court also found that no understatement penalties applied, as the trustees had acted on legal advice and their position, though ultimately incorrect, was a bona fide inadvertent error.
Coronation Investment Management SA v SARS is another major Constitutional Court decision and a significant win for South African multinationals with offshore subsidiaries. The court found that Coronation’s Irish-based fund management company qualified as a Foreign Business Establishment, reversing the Supreme Court of Appeal. The key distinction was between “fund management” (performed in Ireland) and “investment trading” (legitimately delegated to specialists). This is an important precedent for South African groups with controlled foreign company structures, particularly in financial services.
C:SARS v J Company confirmed that a taxpayer cannot unilaterally redact information from documents supplied to SARS under section 46 of the Tax Administration Act, even where the redacted content relates to client and supplier identities. SARS is entitled to full, un-redacted documents in the exercise of its information-gathering powers.
Avin Liebenberg Trust v SARS, ITC 1982, ITC 1983, and Pather v SARS addressed further matters including third-party liability under section 183, trust taxation, and procedural requirements around SARS enforcement. Pather is a useful reminder that the “knowingly assisted” requirement in section 183 places the evidential burden on SARS, and suspicion alone will not suffice.
Interpretation Notes, VAT Rulings, and Guides
SARS issued four updated interpretation notes this quarter. Interpretation Note 20 (Issue 9) covers the additional deductions available to employers for registered learnership agreements, a valuable skills development incentive available for agreements entered into before 1 April 2027. Notes 19 and 90 update the year of assessment rules for natural persons, trusts, and companies with non-standard year-ends. Note 69 (Issue 4) addresses game farming under the First Schedule.
Five VAT rulings were also published, covering zero-rating on offshore investment management services and apportionment methodologies for insurers, REITs, and holding companies. Updated guides include the Motor Dealers VAT guide, VAT Connect Issue 19, a Guide to Advance Tax Rulings, and drafts on tax exemption for benefit funds and section 18A approval for UN entities.
Take Action
The VAT reversal, the Thistle Trust ruling, and the Coronation decision each have practical consequences that could directly affect your tax position. If you operate a trust, have cross-border operations, or need to review your VAT compliance in light of the regulatory changes, now is the time to act.
Download the full Q2 2025 Tax Update below for detailed analysis of all the cases, regulations, and guidance materials summarised above. Please get in touch with us if you would like to discuss how any of these developments apply to your specific circumstances.