A taxpayer created an app that is identical to Uber, in which it markets the tax service. The process is as follows: A client books through the app, a contractor picks them up and drops them where they want to go and the taxpayer/owner of the app receives
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or are exempt from VAT in terms of section 12 of the VAT Act. “Services” is defined in section 1(1) of the VAT Act as anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage. Section 12(g) of the VAT Act exempts from VAT the supply by any person in the course of a transport business of any services comprising the transport by that person in a vehicle operated by him of fare-paying passengers and their personal effects by road or railway. Application of the principles The contractual relationship between the user of the taxi services, the contractor and the owner of the App will determine the VAT consequences of the arrangement. If the user of the taxi services contracts with the owner of the App in terms of which the owner of the App provides the transport in the taxi via a sub-contracting agreement with the contractor, the amount received by the owner of the App would fall within the ambit of section 12(g) of the VAT Act and would be exempt from VAT (on the basis that the owner of the App contractually provides the service of transporting passengers by road or rail to the user of the service, albeit on an outsourced basis). If the transport contract is between the contractor and the user of the taxi service and the App is mearly used to facilitate/market the transaction/service offering, the amount received by the owner of the App would be received on behalf of the contractor and would not be subject to VAT in the hands of the owner of the App. Any amount withheld by the owner of the App as commission/facilitation fees for facilitating the transaction would constitute consideration for a taxable supply and would be subject to VAT at the standard rate (currently 15%). A definitive answer can therefore only be given by having regard to the actual contracts regulating the arrangement.