The recent Tax Court judgment in Taxpayer KG (Pty) Ltd v Commissioner for the South African Revenue Service (IT 46515 and VAT 22578) [2026] ZATC JHB is another stark example of how tax litigation becomes a battle of procedure before the underlying tax dispute is ever resolved. And all the while, legal costs continue to mount.

Tax litigation is often viewed as the ultimate mechanism for resolving a dispute with the South African Revenue Service (“SARS”). Where the parties cannot agree, the assumption is that the Tax Court will provide the answer.

The difficulty is that getting to that answer can itself become a lengthy and expensive exercise. The dispute in this matter concerns a R6.65-million VAT input tax deduction claimed by the taxpayer but disallowed by SARS. Yet, after years of audit, objection, appeal and litigation, the Tax Court has still not determined whether that deduction should have been allowed.

Instead, the parties have now litigated an interlocutory application about whether the taxpayer may amend the factual basis of its appeal. The taxpayer succeeded in that application. However, the substantive dispute remains exactly where it was before the application was heard.

For taxpayers considering litigation against SARS, this case provides a powerful reminder that winning a procedural battle can still leave both parties some considerable distance from resolving the actual tax dispute, whilst the taxpayer continues to foot their ever-growing legal bill.

A Dispute Dating Back to 2017

The underlying transaction took place in 2016, when the taxpayer purchased immovable property for R54.15-million, which included VAT of R6.65-million. The taxpayer claimed the full VAT amount as an input tax deduction in its March 2017 VAT return. SARS initially processed the return and paid the refund in October 2017 following a verification process.

Thereafter and in April 2019, SARS commenced a VAT audit. During that audit, the taxpayer described its business as comprising commercial and residential properties and identified rental income as its principal source of income. Its former accountant similarly stated during a section 47 of the Tax Administration Act, No. 28 of 2011 (“TAA”) inquiry that the objective of acquiring the property was to rent it out.

SARS subsequently proposed an adjustment to the input tax claimed and, in December 2021, issued additional VAT assessments disallowing the full input tax deduction. The taxpayer objected in March 2022. SARS disallowed the objection in June 2022, and the taxpayer appealed in August 2022. SARS delivered its Rule 31 statement in September 2024, followed by the taxpayer's Rule 32 statement in November 2024.

The substantive appeal was eventually set down for hearing from 27 to 30 July 2026. By that stage, almost a decade had passed since the property was acquired. The actual VAT issue had still not been decided.

Then Came Another Court Application

Shortly before the Tax Court hearing, the taxpayer sought to amend its Rule 32 statement. Until that point, its case was essentially that the property had been acquired for development and eventual disposal. The proposed amendment introduced additional factual allegations that the property was also  acquired for the commercial exploitation of approximately 25-million tons of fly-ash located on the property and for the development of a solar electricity project, not being minor factual additions.

The taxpayer accepted that they were new allegations. Its explanation was that its current attorneys had been appointed in November 2025 and had subsequently appreciated the significance of the fly-ash and solar aspects of the property. SARS opposed the amendment.

The parties therefore found themselves in court, not to determine whether SARS had correctly disallowed the R6.65-million deduction, but to determine what the taxpayer would be permitted to argue when that question was eventually heard. This distinction matters.

The taxpayer had already incurred the legal costs associated with an audit, an objection, an appeal, the preparation of Rule 32 pleadings and preparation for a multi-day Tax Court hearing. SARS had similarly incurred the costs of administering and defending the dispute. The main appeal nevertheless did not proceed. Instead, further litigation was required simply to determine the parameters of the future litigation.

Winning Before the Trial Even Starts

The taxpayer  succeeded with the amendment. The Tax Court found that the taxpayer had always disputed the same R6.65-million input tax deduction. Although the taxpayer was introducing new factual grounds, it was not attempting to challenge a different part or amount of the assessment.

The Court therefore held that the amendment was permissible under Rule 32(3). Importantly, however, the Court did not determine that the taxpayer was entitled to the VAT deduction. It simply permitted the taxpayer to advance the additional factual case when the substantive appeal is ultimately heard.  

The taxpayer has won the right to make an argument. The taxpayer has not yet won the R6.65-million dispute and must still incur further costs in terms of the resolution hereof.

Winning litigation and resolving a tax dispute are two different things.

The Cost of Getting to Court

The judgment does not disclose the taxpayer's legal costs but safe to say that litigation of this nature is unlikely to be inexpensive. By the time the interlocutory application was heard, the dispute had already involved years of correspondence with SARS, an audit, responses to requests for relevant material, an objection, an appeal, pleadings under Rules 31 and 32, preparation for a four-day Tax Court hearing and now a separately argued amendment application.

The application itself was heard by the Tax Court on 29 July 2026 and required the parties to address established High Court principles on amendments, Rule 32(3), recent Supreme Court of Appeal authority and Full Court authority dealing with the permissible scope of new grounds of appeal.

This is before one even considers the substantive VAT dispute.

The taxpayer must still prove the factual and legal basis for the deduction. SARS must still consider and test that evidence. Witnesses may still have to testify. Experts may potentially become involved. Counsel must still prepare for and argue the appeal. The legal cost meter has been running for years, but the race has not yet properly started.

The Appeal Has Simply Been Pushed Further Down the Road

SARS argued that it would suffer prejudice if the taxpayer were permitted to introduce a factual case that had never been put before it during the audit. The Court accepted that SARS would now need an opportunity to investigate those allegations but concluded that the prejudice could be addressed by allowing SARS additional time and a supplementary Rule 33 statement.

The trial has been postponed. The taxpayer has been granted leave to amend its Rule 32 statement and must deliver the amended pleading within 14 days. SARS will thereafter have 30 days to deliver a supplementary Rule 33 statement. The costs of the amendment application are costs in the appeal.

More time, more preparation, more legal costs, and still no answer on the underlying tax liability.

The Real Question Is Whether Litigation Was Necessary

There are undoubtedly tax disputes that must be litigated. Some involve important questions of statutory interpretation, while others involve factual disputes that cannot be reconciled between SARS and the taxpayer. In such circumstances, the Tax Court exists for good reason. However, the decision to litigate against SARS should never be taken lightly.

Litigation should ordinarily be the final step in a tax dispute strategy, after the taxpayer has properly identified the facts, obtained the supporting evidence, articulated the legal position and exhausted meaningful opportunities for resolution. This case illustrates what can happen when those foundations are not sufficiently settled from the outset.

The Court itself described the taxpayer's explanation for failing to raise the new factual allegations earlier as “admittedly weak”. The facts were known to the taxpayer from the beginning yet only became part of its pleaded case years later after a change in legal representation. This  required an additional court application merely to determine whether those facts could still be relied upon. A properly prepared dispute should seek to avoid that position altogether.

While the taxpayer in this matter was ultimately permitted to introduce its additional factual grounds, there was no guarantee that this would happen. The Supreme Court of Appeal has already confirmed that Rule 32(3) places limits on the grounds that may be introduced later in the dispute process. A taxpayer cannot simply use the Tax Court proceedings to reconstruct an objection after the fact where the new ground attacks a different part or amount of the assessment.

The earlier the taxpayer's case is properly formulated, the less likely it is that time and money will later be spent litigating about the permissible scope of that case.

Sometimes Nobody Really Wins

Viewed narrowly, the taxpayer won this application. Viewed commercially, the result is considerably less impressive.

Years into the dispute, the parties remain locked in litigation. The Court has decided what the taxpayer may argue. Who owes whom R6.65-million is still to be determined.

Litigation Seldom Makes Sense as a First Choice

Taxpayers are understandably frustrated when SARS issues an assessment they believe is incorrect. Litigation can then appear attractive because it promises an independent court and a definitive answer.

But even a procedural victory may simply earn the taxpayer the right to spend more money litigating the next stage.

The better strategy is therefore not to ask how quickly a matter can be taken to the Tax Court, but whether it needs to get there at all. A properly managed dispute should identify the true issue early, place all relevant facts and evidence before SARS, formulate a complete objection and seriously explore available mechanisms for resolution before litigation becomes inevitable.

There will be cases where SARS simply will not concede and court proceedings are unavoidable, but where litigation becomes a dispute about the dispute itself, the costs begin accumulating long before anyone determines who was right. This judgment is a perfect illustration. Almost ten years after the underlying transaction, and more than seven years after SARS commenced its audit, the parties have obtained another judgment, and they still have not had the trial.

Written by André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA