The High Court in Pretoria has turned down MTN’s application for a declaratory order seeking clarity from the taxman regarding the correct Value Added Tax (VAT) for certain types of pre-paid vouchers or tokens.
MTN took the South African Revenue Services (SARS) to court because it was disputing how VAT is attributed to discounted vouchers.
The question was whether VAT must be accounted for on the discounted amount paid for a voucher or its stated monetary value when used as payment for goods or services.
The dispute dates back to 2017 when MTN requested SARS to issue a ruling confirming that multi-purpose vouchers were subject to section 10(18) of the VAT Act.
When SARS refused to give such a ruling MTN approached the high court to seek a declaratory order.
MTN, which sells both single-purpose vouchers and multi-purpose vouchers, also asked the court to set aside the SARS ruling.
The application for the declaratory order was related to the multi-purpose voucher.
MTN proffered that a multi-purpose voucher was subject to section 10(18) of the Act, as opposed to 10(19), meaning the sale of such vouchers could not trigger any VAT liability.
Instead, VAT would only become payable once the voucher was activated and used to acquire goods or services.
For its part, SARS argued that it was not appropriate for MTN to seek a declaratory order, as the facts in dispute “were not clear and specific”.
While the multi-purpose voucher can be used to make or receive calls, send/receive messages, and access the internet, the court, however, found that the multi-purpose voucher “was specifically an airtime voucher”.
The court held that the sale of the multi-purpose vouchers remains subject to section 10 (19). MTN is therefore obliged to charge VAT on the sale of vouchers.
The court dismissed MTN’s application for a declaratory order with costs.
Reaction to the Ruling
A renowned tax expert says the ruling does not answer all the questions arising from the use of vouchers and the VAT categories they should be placed under.
“The judgment in the MTN case leaves us with more questions than answers on the complex subject of VAT and vouchers,” says Gerhard Badenhorst, a Director in our Tax & Exchange Control practice at Cliffe Dekker Attorneys.
Writing on the law firm’s blog, Badenhorst adds: “The provisions of the VAT Act which deal with vouchers were included in the VAT Act when VAT was introduced almost 30 years ago and have not been amended since.
“The VAT Act has not kept up with the rapid expansion in digital technologies and the proliferation in business promotion initiatives involving vouchers. Perhaps now is the time to review and amend these provisions.”
Badenhorst further wrote that the VAT implications of vouchers might, on the face of it, seem to be of little significance and straightforward.
VAT on vouchers has been the subject of significant litigation in the United Kingdom and the European Union.
“New Zealand has amended its VAT legislation twice in this regard and the United Kingdom substantially amended its VAT rules on vouchers from January 2019,” says Badenhorst.
“SARS issued two draft interpretation notes during 2012 on the subject but neither have been finalised. It is therefore somewhat surprising that there have been very few VAT disputes in South Africa in relation to vouchers.”