REPUBLIC OF SOUTH AFRICA
IN THE TAX COURT OF SOUTH AFRICA
(HELD IN JOHANNESBURG)
Case No.: VAT 1543
In the matter between:
SLGGM
APPELLANT
and
THE COMMISSIONER FOR THE RESPONDENT
SOUTH AFRICAN REVENUE SERVICE
JUDGMENT
This Judgment was handed down electronically by circulation to the parties/their legal
representatives by email and by uploading to the electronic file on Case Lines. The date
for hand-down is deemed to be 19 November 2025.
(1) REPORTABLE: YES / NO
(2) OF INTEREST TO OTHER JUDGES: YES / NO
(3) REVISED.
19 November 2025 _________________
DATE SIGNATURE
2
MALI J
Introduction
[1] This is an appeal against the additional assessments issued by the respondent for the
VAT periods 05/2006 to 01/2015 in accordance with the Value Added Tax Act 89 of 1991 (VAT
Act).
[2] The appellant, SLGGM is a non- profit company registered in terms of section 21 of
the Companies Act of 1973. It is also registered as a Public Benefit Organisation (PBO) for
purposes of the Income Tax Act 58 of 1962. The appellant was incorporated in 2002 and
established to research, develop and deliver capacity building programmes in school
management and leadership, school governance and teacher development for schools ,
including the schools in the Gauteng Province.
[3] The appellant received payments from GDE, which it contends that the payments were
grant funding. SARS ‘contention is that the payments received from GDE for the activities
undertaken other than those of welfare organisation do not comprise grant funding, thus they
were payments for consideration for the actual supply therefore VAT must be charged on the
payments at standard rate.
The legal framework
[4] Sections 11(2)(n) and (t) of the VAT Act provide as follows:
“11. Zero rating.—(2) Where, but for this section, a supply of services would be charged
with tax at the rate referred to in section 7(1), such supply of services shall, subject to
compliance with subsection (3) of this section, be charged with tax at the rate of zero per cent
where—
(n) the services comprise the carrying on by a welfare organisation of the activities
referred to in the definition of “ welfare organisation” in section 1 and to the
extent that any payment in respect of those services is made in terms of
section 8(5) those services shall be deemed to be supplied by that organisation
to a public authority or municipality; or …
(t) the services are deemed to be supplied in terms of section 8(5A):”
[5] Section 8(5A) of the VAT Act provides:
“8. Certain supplies of goods or services deemed to be made or not made. —
“8. Certain supplies of goods or services deemed to be made or not made. —
(5A) For the purposes of section 11(2)(t), a vendor (excluding a designated entity) shall
be deemed to supply services to any public authority , municipality or constitutional institution
listed in Schedule 1 of the Public Finance Management Act, 1999 (Act No. 1 of 1999), to the
extent of any grant paid to or on behalf of that vendor in the course or furtherance of an
enterprise carried on by that vendor.”
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[6] Section 1(1) of the VAT Act defines “grant” as follows:
“ ‘grant’ means any appropriation, grant in aid, subsidy or contribution transferred, granted
or paid to a vendor by a public authority , municipality or constitutional institution listed in
Schedule 1 to the Public Finance Management Act, 1999 (Act No. 1 of 1999), but does not
include—
(a) a payment made for the supply of any goods or services to that public authority
or municipality, including all goods or services supplied to a public authority ,
municipality or constitutional institution listed in Schedule 1 to the Public
Finance Management Act, 1999 (Act No. 1 of 1999 ) in accordance with a
procurement process prescribed—
(i) in terms of the Regulations issued under section 77(4)(c) of the Public
Finance Management Act, 1999 (Act No. 1 of 1999); or
(ii) in terms of Chapter 1 of the local Government; Municipal Finance
Management Act, 2003 (Act No. 56 of 2003), or any other similar process;
or
(b) a payment contemplated in section 8(23);”
Background facts
[7] It is common cause that the appellant and GDE entered into a memorandum of
agreement on 30 May 2006. Clause 5.2 of the memorandum recorded that GDE was a
founding member of the appellant and would retain an interest in the appellant by way of
representation on its board of directors.
[8] Clause 2.2 provided that the appellant and GDE were to use their respective skill s,
expertise, resources and knowledge inter alia, by utilising the appellant as an independent
entity falling under the auspi ces of the GDE, to facilitate, and attend to all day -to-day
operational requirements th at may be necessary to implement and effectively run the
appellant. Clause 2.3.2 provided that the appellant was appointed as a first option service
provider in relation to the improvement of the quality of education in schools through the
transformation of education in the Gauteng Province by the improvement of school
management of and governance skills.
management of and governance skills.
[9] In 2010 the appellant and GDE entered into another agreement styled “memorandum
of understanding” (MOU) replacing the first agreement. Similar clauses as above were
retained. In 2019 the appellant and GDE concluded another “memorandum of understanding”.
It retained corresponding obligations between the appellant and GDE.
4
[10] On 28 March 2015 SARS assessed the appellant in respect of the relevant tax periods
in the total amount of R93,485, 660.45, with understatement penalties at 50% in the amount
of R18,576,757.19 and the late payment penalties in the amount of R9,173,442.73. SARS
basis of assessment is that the payment received by the appellant from GDE classified as a
grant was consideration for actual supplies made by the appellant to the GDE as the appellant
supplied services to the GDE.
[11] The appellant objected to the assessments on the basis that the payments from GDE
were in respect of grant funding for the purposes identified in the appellant ’s founding
documents, and to be used in accordance with the purposes, uses, and conditions set out in
the agreements pertaining to such funding, thus the enhancement of education in the Gauteng
Province.
[12] In its rule 32 statement the appellant states that it operated as a welfare organisation
and was thus a “designated entity” as defined in section 1 of the VAT Act and that section 8(5)
read with section 11(2)(n) of the VAT Act render the supplies it made to the GDE zero rated
and that the payments it received from the GDE for the activities undertaken other than those
of welfare organisation comprise grants as defined and that section 8(5A) read with
section 11(2)(t) of the VAT Act render the supplies zero rated.
[13] SARS stood by its assessments that the appellant is not a welfare organisation and
that the funding received from GDE was the payment received for consideration for actual
supplies, therefore attracting VAT at standard rate.
Issue
[14] The central question for determination is whether payments made by the GDE to the
appellant constituted “grant funding”, thus subject to zero-rating or were payments for “actual
services rendered” by the appellant to the Department, thus attracting VAT at standard rate.
Evidence
[15] A sole witness Mr A the Chief Executive Officer of the appellant testified on behalf of
[15] A sole witness Mr A the Chief Executive Officer of the appellant testified on behalf of
the appellant. He testified that the appellant was responsible for rendering services to the
recipients such as school governing bodies, teachers, learners, parents and school
management teams. Services were in the form of programmes independently developed after
analysing and identifying needs, gaps and shortcomings in the educational system. Proposals
would be prepared to address the issues. The programmes were also extended to other
provinces, but not limited to public schools, as non- Departmental and independent school
educators benefited.
5
[16] He further stated that the appellant annually applied for grant funding in the form of a
letter detailing the programmes for implementation. To obtain funding payments the appellant
would submit invoices to the GDE to process grant funding payments which included a R5
million annual transfer for the appellant ’s operational costs. GDE was not obliged to pay the
invoice amount; it decided on the amount it wanted to pay in its sole discretion as GDE was
not the debtor of the appellant.
[17] Mr A did not deny that the itemised invoices were prepared to comply with procurement
requirements, thus inferring that the appellant was the service provider. Furthermore, he
acknowledged that the appellant reports to the GDE quarterly on both programs and the
budget, this is despite that he initially denied the responsibility to report on the budget. All this
information was contained in the agreements between the appellant and GDE.
[18] Mr A was confronted with documentary evidence particularly paragraph 6.6 to 8 of the
MOU showing inconsistency with the alleged independence of the appellant . In these
paragraphs amongst others, it is recorded that GDE was at liberty to make amendments to
the strategic plan and budgets, upon which the appellant would be required to revise and re-
submit the plan and/ or budgets within 30 days after being required to do by the GDE. The
appellant was required to effectively strategize, implement, manage, monitor and review the
appellant’s program and related projects subject to the right of GDE in its sole discretion, to
conduct an independent review during any period during the tenure of the agreement or
subsequent agreement, unless the power of review is revoked by GDE in writing.
[19] In retort to the above he stated that the appellant was obliged to submit quarterly and
annual reports to GDE as part of oversight and reporting obligations which it did. In response
to question posed about clause 2.3.2 read with clause 1.1.7 of the MOA of April 2002 which
to question posed about clause 2.3.2 read with clause 1.1.7 of the MOA of April 2002 which
provides for the appointment of the appellant as the “first option service provider”; he stated
that the appellant was never appointed as a service provider.
[20] Clause 5 of the MOU dated September 2010, dealing with the key mandate for the
appellant reads as follows:
“GDE recognises and has established SLGGM to be the training delivery arm of the GDE in the
area of School Governance Development, School Management Development and Teacher
Development.”
Mr A’s answered that it did not mean that the appellant was the service provider.
6
Discussion
[21] In arriving at the proper construction of the applicable VAT provisions, the Court must
engage in an interpretative exercise. As established in Natal Joint Municipal Pension Fund v
Endumeni Municipality,1 interpretation must consider the context, circumstances surrounding
the creation of the provision, and the material known to those responsible for its drafting.
[22] Building on Endumeni, in Capitec Bank Holdings v Coral Lagoon Investments 194
(Pty) Ltd 2 it is held that the triad of text, context, and purpose should not be applied
mechanically. Instead, interpretation involves understanding the relationship between the
words used, the concepts they express, and the provision’ s place within the broader legal
framework. The starting point remains the language of the provision.
[23] In CSARS v Marshall N.O. and Others3 it is held:
“[18] The VAT Act regulates taxation in respect of the supply of goods and services and
importation of goods and services within the country. The vast majority of transaction relating
to supply, by a vendor, of goods or services, fall within the scope of s 7(1) of the VAT Act. This
is because the definition of ‘ supply’ in s 1 of the VAT Act includes a very wide range of
transactions.”
[24] The definition of a “ grant” in section 1(1) of the VAT Act explicitly excludes “ any
payment made for the supply of any goods or services to the public authority or municipality
making the payment”. The core of the dispute therefore turns on the nature of the payment:
was it a gratuitous or unrequited transfer of funds, or was it a quid pro quo for services supplied
to the Department?
[25] The appellant places stringent reliance on section 8(5A), which deems certain grants
to be supplies. However, this section only applies if the payment is first established to be a
grant. If the payment is for actual services, section 8(5A) is not applicable.
[26] The appellant’s interpretation seeks to rely on the deeming provision of section 8(5A)
[26] The appellant’s interpretation seeks to rely on the deeming provision of section 8(5A)
without first establishing the foundational fact that the payments were gratuitous. The definition
of a “grant” requires the payment to be unrequited. The evidence demonstrates a clear quid
pro quo: the Department paid the appellant to act as its “training delivery arm” and to perform
the capacity-building functions described in the agreements.
1 [2012] ZASCA 13; 2012 (4) SA 593 (SCA) para 18.
2 [2021] ZASCA 99, 2022 (1) SA 100 (SCA) para 25.
3 2017 (1) SA 114 (SCA).
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[27] The fact that the ultimate beneficiaries were teachers and learners does not alter the
fact that the service of training these individuals was supplied to the Department, enabling it
to fulfil its own public duties. The Department received direct and substantial value in return
for its payments.
[28] Mr A’s evidence amongst others, for example his insistence that GDE received no
benefit from the appellant ’s work is untenable and directly contradicted by, for example, his
own statement in the 2013 financial report that the appellant ’s main business was to provide
capacity-building interventions as mandated by the GDE.
[29] Mr A’s attempt to retreat from his initial, clear evidence that unspent funds were treated
as “deferred income” because “the money did not belong to the appellant” until the work
was done, further eroded his credibility. [emphasis added] This admission is entirely
inconsistent with the nature of a grant, which becomes the property of the recipient upon
payment. It is, however, perfectly consistent with payment for services to be rendered, where
the funds are an advance for a specific cont ractual mandate. Furthermore, the capitalization
on the fact that the services were extended to other provinces does not change the nature of
the payment received from GDE.
[30] In most parts of his evidence, he was evasive, repetitive, and fundamentally lacking in
credibility. His testimony was characterised by a “repeated refrain” that was obstructive and
designed to avoid conceding points that were plainly evident from the documents. Most
damning was the direct contradiction between his initial testimony and documentary evidence
he himself oversaw.
[31] For these reasons, where Mr A’s oral testimony conflicts with the contemporaneous
documentary evidence, the latter is preferred, and his testimony is rejected. As discussed
above, there is overwhelming evidence demonstrating that the payments were made as
consideration for services supplied by the appellant to GDE.
consideration for services supplied by the appellant to GDE.
[32] Furthermore, considering the true nature of the relationship, between the appellant and
GDE, the documentary evidence, particularly the M OU, paints a consistent picture of the
appellant acting as an implementing agent for GDE. Analysing the “Key Mandate”, clause 5
of the 2010 MOU is pivotal. It explicitly states that the GDE “has established SLGGM to be
the training delivery arm of the GDE” [emphasis added]. This language is unequivocal. It
describes a principal-agent relationship, not that of a benefactor and an independent grant -
recipient.
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[33] Also, alignment of purpose is another factor for consideration. While the appellant may
have independently designed its programmes, the evidence shows these programmes were
aimed at fulfilling GDE’s constitutional and statutory mandate. Mr A conceded a “ natural
overlap” and that the appellant reported on the needs of the sector to the GDE and justified
its funding based on addressing those needs. This accords with the conduct of a service
provider reporting to its client, not an independent entity using grant funding for its own
purposes.
[34] Moreover, t he discovery of itemised invoices submitted by the appellant to the
Department is entirely destructive of the appellant ’s version. Grants or donations are not
invoiced; services are. The presence of these invoices, without any suggestion to the contrary
provides compelling objective evidence of a supplier-client relationship.
[35] The Appellant relied on Grain SA v CSARS,
4 where the court declared that funds
received for a Farmers ’ Development Program were donations and therefore not subject to
VAT. This case is, however, clearly distinguishable. The court’s decision turned on the specific
legal definition of a “donation”, which it quoted as:
“... a payment whether in money or otherwise voluntarily made to any association not
for gain... in respect of which no identifiable direct valuable benefit arises ... to the
person making that payment ...”
[36] The present matter concerns a “grant”, not a “donation”. Even if these concepts were
to be equated, the a ppellant’s circumstances fail to meet the definition’ s core requirements.
Crucially, the payment was not “voluntary” in the legal sense contemplated in Grain SA. The
appellant’s own documentation establishes it acted as an “ implementing arm” of GDE, with
obligations and deliverables. This relationship, evidenced by the issuance of invoices, is
inconsistent with a voluntary donation and suggests an expectation of a specific service in
return.
return.
[37] The appellant also cited MEC for Economic Opportunities WC v Auditor -General5 In
that case, the central issue was whether certain payments should have been accounted for
as subsidies or as payments for goods and services under P ublic Finance Management Act
No. 1 of 1999 (PFMA) and Generally Recognised Accounting Practice (GRAP) accounting
standards. The court reviewed and set aside the Auditor -General’s findings regarding the
department’s non-compliance with those specific standards.
4 1434/2010 FSHC.
5 2021 (1) SA 455 (WCC).
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[38] This case is entirely distinguishable to the present dispute. This matter concerns the
correct VAT treatment of a payment, a question governed by the VAT Act, not public sector
accounting standards. The appellant’s argument that its accounting treatment was dictated by
the Auditor-General is irrelevant to the legal characterization of the payment for VAT purposes.
Compliance with auditing standards does not pre- empt or determine the correct legal
construction under tax law; these are separate and distinct regulatory domains.
[39] T he lack of PFMA compliance and the Auditor-General’s classification of payments as
a grant, while noted, are not determinative of the correct VAT treatment under the VAT Act.
The substance of the relationship, as evidenced by the agreements, the invoices, and the
appellant’s own accounting treatment, prevails over form.
Conclusion
[40] The appellant has failed to discharge the onus , that the payments from GDE were
grants. It is found that the appellant is involved in the actual supply of services taxable at
standard rate. Consequently, the supplies must be standard rated for VAT purposes, not zero-
rated. SARS had agreed on 10% penalty and that no understatement penalty shall be
imposed.
[41] In the result, the following order is granted:
ORDER
1. The appeal is dismissed.
2. Value Added Tax assessments issued by SARS for the period 05/06 to 01/ 15 are
confirmed.
3. The appellant is ordered to pay 10% penalty on late payments . There is no payment
levied for understatement penalty.
4. There is no order as to costs.
____________________
NP MALI
JUDGE OF THE HIGH COURT
Before
JUDGE NP MALI (TAX COURT PRESIDENT)
MR W NDLOVU (ACCOUNTANT MEMBER)
MS G GOULD (COMMERCIAL MEMBER)