Sars has achieved a significant victory in the Tax Court against a taxpayer involved in the controversial locomotive procurement deals from the State Capture era, highlighting the revenue service's relentless pursuit of tax accountability.
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The South African Revenue Service (Sars) has secured a significant victory in the Tax Court against a taxpayer linked to the controversial Chinese locomotive procurement deals that emerged during South Africa’s State Capture era, underlining the tax authority’s increasingly aggressive pursuit of historic tax matters.
In the matter of Taxpayer LE (Pty) Ltd v CSARS, the Tax Court upheld additional tax assessments and a hefty 200% understatement penalty imposed by Sars for the 2013 to 2018 tax years. The case centred on allegations that the taxpayer overstated billions of rand in costs linked to locomotive procurement contracts associated with Marshall SOC Ltd.
According to the judgment, Sars alleged that approximately R3 billion in expenses had been inflated through related-party transactions and consultancy arrangements that the tax authority argued were not incurred in the production of income. Sars further challenged substantial interest deductions claimed by the taxpayer.
Junaid Bhayla, team lead of tax debts at Tax Consulting South Africa, says the ruling sends a strong warning to taxpayers who believe the passage of time or procedural challenges can shield them from accountability.
“While Sars may sometimes move slowly, once it begins following the money trail, it is relentless in its pursuit,” Bhayla says.
He adds that the judgment reflects Sars’s growing role in holding State Capture-linked entities financially accountable, even while criminal prosecutions continue to move slowly through the courts.
“Through additional assessments, penalties and interest, Sars can challenge taxpayers financially long before criminal liability is determined,” Bhayla says.
A central issue before the court is whether Sars was entitled to reopen assessments that would ordinarily have been prescribed under section 99 of the Tax Administration Act.
The taxpayer argued that Sars had exceeded the normal three-year prescription period for issuing additional assessments. However, the court reaffirmed that prescription does not apply where underassessment resulted from fraud, misrepresentation, or the non-disclosure of material facts.
The court accepted Sars’s argument that critical information only emerged after extensive investigations involving the South African Reserve Bank, forensic inquiries, international information-sharing requests, and broader State Capture investigations.
The ruling also reaffirmed the long-standing “Metcash principle”, which places the burden on taxpayers to prove that a Sars assessment is incorrect once it has been issued.
Bhayla says many taxpayers misunderstand this principle.
“Many taxpayers assume that Sars must first prove every aspect of an assessment before the taxpayer is required to respond, which is incorrect. Once Sars issues an assessment, the burden shifts to the taxpayer to demonstrate why the assessment is wrong,” he says.
Court papers show that the taxpayer launched several procedural objections during the proceedings, including challenging the presiding judge and disputing the admissibility of Sars documents. However, the taxpayer ultimately closed its case without leading evidence to rebut Sars’s findings.
The court subsequently confirmed the assessments in full.
The judgment also highlighted the extensive investigative work undertaken by Sars’s Illicit Economy Unit, which gathered evidence from multiple institutions, including commercial banks, auditing firms, and international tax authorities in Hong Kong through exchange-of-information mechanisms under double taxation agreements.
Bhayla said the case demonstrates how sophisticated Sars investigations have become.
“When Sars does eventually arrive, they do so with evidence from bank statements, treaty-based information exchanges, forensic investigations, and experienced officials. The consequences can be severe for the mischievous taxpayer,” he says.
The case comes amid renewed scrutiny of financial misconduct linked to State Capture. The Judicial Commission of Inquiry into Allegations of State Capture, commonly known as the Zondo Commission, previously estimated that corruption and maladministration linked to State Capture cost South Africa billions of rand and severely weakened state institutions. The commission’s final report recommended stronger enforcement action, improved inter-agency cooperation, and more aggressive recovery of public funds.
Meanwhile, Sars's former commissioner, Edward Kieswetter, has repeatedly stated that the revenue service is intensifying efforts to combat illicit financial flows, tax evasion, and financial crimes through advanced data analytics and international cooperation agreements.
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