An immense, multibillion-rand tax fraud scheme has been uncovered in an investigation into the second-hand gold industry. Billions are alleged to have been siphoned off to line the pockets of a select few, robbing ordinary South Africans of funds that could have been used towards infrastructure and development. Crucial to the workings of this scheme are dodgy refineries.
The concept is simple: while gold exports are zero-rated for VAT, buying gold scrap locally carries the standard 15% VAT. So, shady players are buying large amounts of gold for export without paying the obligatory VAT and then claiming 15% of the value of the gold as a refund from the South African Revenue Service (SARS) on tax they never actually paid.
For the scheme to work, untaxed gold is introduced into the chain, and fake VAT payments for this are created. It seems that most of this supply is coming from smuggled or illegally mined gold, and the illegal smelting of gold Krugerrands (which are legal tender and therefore zero-rated for VAT).
While just two major companies are accused of spearheading the scheme that fraudulently presents this illicit gold as second-hand, dozens of tiny suppliers of gold to these dealers are also being scrutinised, and some are under criminal investigation. In fact, the bulk of the SARS analysis deals with this shady network of small-scale gold suppliers. One of these operators allegedly faked supplies from individuals who were interviewed during a SARS audit and who denied having sold second-hand gold jewellery to the operator. These suppliers have also been caught fraudulently making use of the VAT registration numbers of other suppliers in the supply chain.
Your scrap gold could be contributing to the issue if you’re not following the required procedures to safeguard against this when selling it to a refinery, and especially if you’re supporting a refinery that is not licenced. Even more concerning for individual business owners is that your name could be dragged into investigations, and your VAT number might be used by the illicit traders to falsify purchases.
SARS also appears to have been very concerned with witness protection in this investigation, so for your own personal safety you should avoid doing business with any shady operators. According to its court papers: “Witnesses in the tax inquiry testified that the secondary gold industry is a dangerous industry. Certain of the witnesses were scared and sought specific assurances that their evidence would not be disclosed.”
During the 2021 budget, the Finance Minister proposed that measures be implemented to address undue VAT refunds on gold. On 6 October last year, National Treasury suggested the introduction of a domestic reverse charge, making the buyer of the gold liable for the VAT declarations of the seller, rather than the other way around. The changes were to be implemented on 1 January and comments were invited on various issues including the date of implementation, which would have been impossible to meet. CPM will keep you updated as we hear more on the progression of these amendments to the VAT Act.
HOW YOU CAN HELP:
Don’t support unethical refineries and always adhere to your refinery’s Chain-of-Custody requirements. These are in place for solidly good reasons: to protect others, the environment and yourself.
Probably as a result of the investigations into this vast gold VAT scam industry, a number of fake ‘Refiners Licences’ have been exposed recently, and SAPS investigations are underway. Here’s how you can identify a valid licence, based on some of the errors that have been noted:
HOW TO IDENTIFY A FAKE LICENCE
- Forgeries start by referring at the top to The Diamond Act. Note that a Refiners Licence refers to The Precious Metals Act.
- “This Entitles the Licence Holder to” as well as the “Conditions of the Licence” are not itemised in legitimate documents, as the fraudulent documents have done. This style is taken from the Diamond Licences conditions and tweaked to refer to precious metals.
- Entitlement and Conditions on a Refiners Licence are written in long paragraph form, not bullet point.
- The validity dates give it away further: One licence claimed to be issued for 5 years, another for 15 years (a Refiners Licence is valid for 10 or 30 years). In addition when a legal licence is issued, it ends one day BEFORE the date of issue (10 or 30 years later) ie Issued: 25 January 2021 / Valid until 24 January 2031.
Help us to keep this industry trustworthy and legitimate, for the good of the collective!