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MBABANE – The Revenue Appeals Tribunal Eswatini (RATE) has handed down a landmark judgment clarifying the value-added tax (VAT) treatment of services linked to international transportation operations.
The Tribunal ruled largely in favour of the Eswatini Revenue Service (ERS) in a dispute involving more than E300 000 VAT.
The case involved a based logistics and transportation company that provides cross-border freight transport and related services between Eswatini and South Africa. The company forms part of a group structure and conducts business with its South African sister company, to which it provides various management, administrative and support services.
These include the hiring and coordination of transport, the engagement and management of drivers, the administration of driver payrolls and other services ancillary and incidental to international transportation services.
In a judgment handed down on June 18, 2026, the Tribunal dismissed an appeal against ERS assessment relating to the VAT treatment of management services provided to a South African company involved in international transport operations between Eswatini and South Africa. The ruling provides judicial guidance on the interpretation of services supplied ‘in connection with’ international transportation under Eswatini’s VAT legislation and draws a distinction between services that directly form part of the transport process and those that merely support the operation of a transport business. At the centre of the dispute was whether management fees charged by an Eswatini-based company to its South African affiliate qualified for zero-rating under the VAT Act as services connected to international transportation.
Following a tax compliance audit covering the 2022 and 2023 tax years, ERS concluded that management fees amounting to more than E2 million had been incorrectly treated as zero-rated supplies rather than standard-rated taxable supplies. The audit identified a variance of E2.04 million between revenue declared for income tax purposes and VAT output tax declared in VAT returns.
After objections and revisions to the audit findings, ERS assessed VAT of E306 131.22 and imposed penalties amounting to E91 839.37.
The taxpayer challenged the assessment before RATE, arguing that the services constituted exported services supplied to and consumed by a recipient in South Africa and were, therefore, eligible for zero-rating. The company further maintained that the services were rendered in relation to international transportation activities and should fall within the scope of Paragraph 1(b) of the Second Schedule to the VAT Act, which provides zero-rating for services connected with the international transport of goods or passengers.
ERS, however, argued that the services in question consisted primarily of management and administrative functions and did not have the direct operational connection to international transport required by the legislation. The revenue service maintained that the services were neither exempt nor zero-rated and, therefore, attracted VAT at the standard rate. A major aspect of the judgment centred on the interpretation of the phrase ‘services in connection with the international transport of goods or passengers’.
The Tribunal noted that the taxpayer argued for a broad interpretation of the phrase, contending that services supporting an international transport business should qualify for zero-rating. However, the Tribunal rejected that interpretation. The Tribunal held that the law requires a direct operational relationship between the service supplied and the actual movement of goods or passengers across international borders. According to the judgment, the phrase does not extend to all services that may be important or beneficial to a transport enterprise. The Tribunal stated that a distinction must be drawn between services that form part of the transport chain and services that merely support the broader business.
In explaining its reasoning, the Tribunal observed that payroll administration, organisational coordination and management oversight may be essential to the functioning of a transport company, but they do not directly participate in the transportation of goods or passengers.
The Tribunal found that the Legislature deliberately used the phrase ‘in connection with international transport’ rather than broader language such as services ‘used by’ or ‘necessary for’ transport operators. This wording, the Tribunal concluded, demonstrates an intention to limit zero-rating to services with a closer functional relationship to transport activities themselves.
The judgment reveals that the services supplied included management, payroll administration and driver coordination.
The Tribunal examined whether these activities could be separated into components that might qualify for different VAT treatment. The taxpayer argued that portions of the management fees related to transport coordination and should therefore qualify for zero-rating.
However, the Tribunal found that insufficient evidence had been presented to justify such an apportionment.
It held that the taxpayer bore the burden of proving entitlement to preferential VAT treatment and failed to provide adequate evidence demonstrating how the management fees could be objectively divided between taxable and zero-rated components. The Tribunal further found that the evidence did not establish a reliable methodology for separating the various elements of the services supplied. As a result, it concluded that the management fees constituted a single composite supply rather than distinct supplies capable of different VAT treatment. According to the judgment, VAT consequences must be determined according to the true legal character and economic substance of a transaction rather than through artificial segmentation or accounting allocations.
