Clarity is the foundation upon which all law rests. The rule of law itself is built on the premise that people must know what the law requires of them. It offends justice to punish anyone under rules that are so vague or uncertain that compliance becomes guesswork. Our courts have long recognised that vagueness can be a defence: a law that is so unclear as to be incapable of meaningful application risks being struck down as unconstitutional. This demand for clarity applies across the legal system, but it is tested most severely in the field of tax, where the rules are technical and the stakes are often high.

Ramani Naidoo

Against this backdrop, the recent Supreme Court of Appeal decision involving a Northern Cape mining group raises an unsettling question. The company approached SARS, through its auditors, to confirm whether diesel refunds for contractors qualified for rebates – an ostensibly reasonable step for any taxpayer wanting to stay on the right side of the law and a step clearly envisaged in existing tax legislation. Rather than delivering future clarity, SARS’s response included launching a retrospective compliance audit of the company’s operations. It determined that the company’s contracts with mining service providers were “wet contracting” rather than “dry contracting”- in other words, that contractors were effectively bearing the diesel costs, disqualifying the rebate - and further that the company’s logbooks did not meet the detailed requirements of the Customs and Excise Act. On those grounds, SARS demanded nearly R40 million in repayments, a decision which was upheld on appeal by the SCA.

Legally, the ruling is sound. The Act draws a hard line between wet and dry contracting, and it requires precise records to demonstrate compliance. The court held that “substantial compliance is not sufficient,” and on the facts before it, an entitlement to the rebate could not be established. None of that is controversial. Rebates are a statutory privilege, not a right, and those who wish to benefit from them must follow the strict letter of the law. No one disputes too that SARS has the legal power to conduct audits and insist on strict compliance. But power must be exercised with a sense of fairness and proportion.

The whole point of advance rulings is to encourage taxpayers to come forward openly and ask for certainty. They are designed to provide taxpayers with certainty before they act. If engaging with SARS in this way results in retrospective penalties, then the system risks becoming self-defeating. The message it sends is not, when in doubt, “be transparent,” but rather “say nothing” – a message that corrodes trust in both the tax system and the rule of law itself.

The issue is not just about tax refunds and logbooks. It is about predictability. Businesses plan their operations, contracts and investments around their understanding of the law. When a company seeks SARS’s guidance, the expectation is that if it acts in line with that guidance, it will not be penalised later for failing to anticipate a stricter interpretation. Clarity cannot be clarity if it comes only after the fact, in the form of a penalty.

Record keeping is another part of the puzzle. If “substantial compliance” is no longer enough, then the standards must be drafted with absolute precision. If SARS expects perfect documentation, then it should say so in terms that are accessible and unambiguous. Otherwise, taxpayers risk being held to a standard that may not always be clear in advance, leaving them vulnerable to penalties after the fact.

None of this is to suggest that SARS should be lenient on fraud or deliberate evasion. Harsh penalties are justified where dishonesty is at play. But when taxpayers act in good faith and seek guidance, the fairness of retrospective enforcement comes into question.

This is not about defending one company or its contracts. It is about the integrity of the tax system itself. Clarity and fairness are inseparable. For governance to function, these must go hand in hand. A regime that punishes those who ask for guidance undermines trust, not just in SARS, but in the rule of law. If advance rulings are to serve their purpose, they must offer genuine certainty. Otherwise they risk deterring the very openness they were meant to encourage.

ENDS
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ABOUT THE AUTHOR:

Ramani Naidoo is a business leader, governance specialist, South African lawyer and author with decades of experience spanning the law, corporate governance, boardroom practice and ethical leadership. She is currently a CEO and has served as company secretary and director across multiple industries, combining boardroom and executive experience with deep governance expertise. Ramani Naidoo is also an Honorary Patron of CGF Research Institute (Pty) Ltd.

CONTACT:

Ramani Naidoo
Email: Ramani@parnis.co.za
Mobile: +27(0)82 783 5481