Sasol’s R12.8bn sting in the tail
TAX COURT: GIANT LIABILITY LOOMS Possible obligation may arise for tax years following 2014 which could give rise to a further contingent liability.
As if lower revenue, Heps and a dividend down almost 15% wasn’t bad enough, Sasol’s annual results contained a potential R12.8 billion sting in the tail.
It disclosed several Sars disputes, relating to Sasol Oil’s international procurement of crude oil between 2005 and 2012.
The matters are being heard in the Tax Court. In June it ruled in favour of Sars for procurement in the 2005 to 2007 tax years. However in August, it granted Sasol Oil its application for leave to appeal to the Supreme Court of Appeal.
The disputes arose because Sars disallowed costs associated with Sasol Oil’s crude purchases, but taxed the revenue. “It sounds unfair and there would have had to be a reasonable basis for Sars’ decision to disallow costs,” says Karl Gevers, Benguela Global head of research.
“If it was that simple, it would not need to go to the Supreme Court of Appeal. Sasol has historically had a high tax rate. This tends to roughly indicate the extent of a company’s compliance, however it is not a perfect measure.”
Potential tax liabilities by their nature tend to be obscure and subject to legal process, adds Lonwabo Maqubela, Perpetua Asset Management head of research. “This makes it very difficult for investors to fully understand the extent of the problem and to make a judgment.
“In the short term, if a large contingency exists, it can act as a cap to short- [and] medium-term share price movements.”
Sasol noted a negative outcome could result in potential adjustments to its taxable income and an additional tax liability, including interest and penalties of about R1.2 billion for periods 2005 to 2014.
Sasol Oil cooperated with Sars during the audit of these assessments; as a result Sars agreed to suspend payment of this disputed tax for the periods 2005 to 2012.
Sasol noted there could be a potential R11.6 billion tax exposure for the periods 2013 to 2014 on varying tax principles relating to the way oil’s procured and accounted for.
Gevers says although results were satisfactory, the R11.6 billion potential tax exposure was a concern and would remain so for the market until there’s clarity.