Mobile network operator MTN has lost its Supreme Court appeal over a dispute with the South African Revenue Services (SARS) over value-added tax (VAT) on prepaid vouchers.
In a judgement delivered this week, the Pretoria High Court dismissed MTN’s appeal with costs.
According to the Supreme Court of Appeal, the respondent of the appeal was the SARS commissioner.
Historically, the sale of the prepaid vouchers was dealt with by MTN as falling under section 10(19) of the VAT Act 89 of 1991.
On 15 November 2017, MTN sought a private binding ruling from SARS under section 41B of the Act, to the effect that the sale of the prepaid vouchers could be dealt with as falling under section 10(18) of the Act.
According to law firm CDH, section 10(18) deals with vouchers which grant the holder the right, in return for the payment of a consideration in money, to receive goods or services to the extent of the monetary value stated on the voucher.
It explains that the voucher holder determines the goods or services to be acquired, and there is often more than one supplier to choose from.
The law firm adds that section 10(19) deals with vouchers issued for a consideration in money which entitle the holder to receive the goods or services specified thereon without any further charge.
The VAT on these vouchers is payable when the vouchers are issued because the nature and VAT status of the goods or services are known when the voucher is sold, and no VAT is payable when the voucher is redeemed, says CDH.
On 4 April 2019, after an extensive exchange of correspondence, SARS issued a private binding ruling to the effect that section 10(19), and not section 10(18), of the Act applied to MTN.
MTN had argued that VAT should not be accounted for when the said voucher was sold to the subscriber.
Section 10(18) attracts VAT at the time the voucher is used by the customer to obtain services rather than on its initial sale to the customer.
In making the ruling, the court says SARS submitted that the factual position was far from clear. “It said that MTN dealt with the application largely in the abstract. It had not put up sufficient or clear facts to allow the court to finally determine the entitlement of MTN to apply section 10(18) rather than s 10(19).
“In particular, the facts were not clear as to precisely how the prepaid vouchers functioned. MTN had provided no evidence of ‘how vouchers are purchased, what information is provided to customers, and the manner in which vouchers are actually used by customers’. In addition, the concept of ‘airtime’ has evolved over time due to technology and the use of data and the like. In the result, SARS submitted that, on the facts presented, it was not clear what ‘airtime’ actually connoted. Therefore, the matter did not fall within the narrow purview of when a declaratory order would be entertained in tax matters.”
According to the court, considerable difficulty was experienced during argument in obtaining clarity on the nature of airtime as used by MTN and how the prepaid vouchers function in practice.
This also applied to the question of whether the services offered were specified by usage or arrangement, it says.
“It seems to me that, at best, the factual position as to both of these aspects is distinctly opaque. This is not a matter where there is a set of clear, sufficient, uncontested, facts. The present matter therefore differs markedly from those mentioned above where our courts have entertained applications for declaratory orders in tax matters.”
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