A recent issue that faced the courts shed some interesting insight on the inadvertent payment of VAT to a non-VAT payer. The controversy arose as a consequence of the gambling laws "deeming" the bid fee paid by prospective candidates to be inclusive of VAT.
The relevant Provincial Gambling and Racing Board invited interested parties to apply for a Casino Operator Licence. Written applications for the Casino Licence were submitted and it was later publicly announced that the relevant Gambling and Racing Board had selected a particular candidate for the Casino Licence. This licence was later issued to the said business.
In inviting applications for the Casino Licence, in selecting the successful business and in issuing the licence, the Gambling and Racing Board acted in terms of the Gambling Law, which stated that a bid fee shall be payable to the Gambling and Racing Board by all successful candidates for a Casino Operator Licence and that the bid fees collected by the Gambling and Racing Board shall be paid to the Provincial Revenue Fund.
The bid fee payable in this instance was R135 million. Also, in a Schedule to the Gambling Laws, it provided that all fees included VAT. The successful business was a VAT vendor. As per the Gambling laws, the amount of R135 million included VAT. In terms of the charging provisions of the VAT laws where an amount includes VAT, the value of the supply of the relevant goods and or services amounts to R118 421 052.64 and the VAT component amounts to R16 578 947.36.
It was argued that payment of R135 million was made to the Gambling and Racing Board on the pretext that the Gambling and Racing Board was a VAT payer and that the relevant goods and services supplied to the business constituted taxable supplies.
It later transpired that the Gambling and Racing Board in question was not registered as a VAT payer, and consequently, that it was not entitled to levy VAT on the supply of goods or services to the business. The business requested that the Gambling and Racing Board provide it with a tax invoice in respect of the payment made. This was never issued to the business and, in the absence of such a tax invoice the business was unable to claim, and did not claim, a corresponding input tax deduction.
The final salvo in this matter has not been sounded as yet, but it should go in favour of the business. The potential outcome could be that the Gambling and Racing Board may have to refund the business the VAT paid. Alternatively, that the Gambling and Racing Board could seek approval for registration as a VAT payer which would result in fiscal neutrality.
There are mechanisms in place in the VAT laws to assist VAT payers across the business spectrum to recover input VAT not claimed on past expenses.
For further information, please contact a member of the VAT Team, or any of the following:
Johannesburg: Dave Kennedy, Geraldine Connell, Ferdie Schneider, Severus Smuts, Jacqui Wierzbowski, Amanda Kort, Hanief Ebrahim; 011- 806-5770
Pretoria: Suzanne van der Merwe; 012- 482 0085
Durban: Peter Maxwell; 031- 560 7067
Cape Town: Mark Silver 021- 670 1678; Des Kruger 021- 670 1669
Port Elizabeth: Lise Claassen 041- 398 4009
Client Service Centre: 011- 209 8999
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