The VAT treatment of Prepaid Vouchers

The VAT treatment of Prepaid Vouchers

• 22 September 2021
• VAT
• The Tax Faculty Tax Specialist

This article relates to the 2021 year of assessment. 

Introduction

On 12 January 2021, the High Court handed down judgment in the matter of MTN vs CSARS (79960/2019). The case concerned the VAT treatment of prepaid vouchers (i.e. multi-purpose voucher) issued by MTN entitling the holder to redeem such voucher, based on the monetary value stated thereon, for an array of services or products available through the MTN mobile network. The court held that prepaid ‘airtime vouchers’, which entitle the holder to receive various products or services to the extent of the monetary value stated on such voucher, must be treated as a section 10(19) voucher, resulting in the output tax payable at the time the voucher is issued and not when the voucher is redeemed by the title holder for goods or services.

Background

MTN offers two types of vouchers, one being a specific voucher and the other a multi-purpose voucher. In this judgment, consideration was given to a prepaid voucher (i.e. multi-purpose voucher described as an ‘airtime’ voucher), which allows the title holder to receive/access any services or products available through MTN’s network based on value stated on the voucher. When an airtime voucher is purchased and activated the title holder’s sim card is credited to the value of the voucher. This storage of money is referred to as a ‘main wallet’, which can be used to access the various services or products available through the MTN networks. Consequently, when the title holder accesses the services or products, the applicable cost of that service based on the prevailing tariff is deducted from the main wallet. In November 2017 MTN applied to SARS for a private binding ruling to confirm that its multi-purpose voucher (described as an ‘airtime’ voucher) falls within the ambit of section 10(18). However, SARS issued a ruling in April 2019 determining that an airtime voucher falls within the ambit of section 10(19). Accordingly, MTN sought a declaratory order from the High Court to confirm whether the supply of its airtime voucher falls within the ambit of section 10(18) of the VAT Act.

The Law

Section 10(19) deals with vouchers that specify the goods or services that the holder is entitled to receive. As the goods or services that will be supplied or redeemed are known at the time the voucher is supplied, there is certainty as to what the applicable VAT rate would be and therefore VAT is levied on the sale of the voucher. When the voucher is subsequently redeemed for goods or services, the vendor does not have any further VAT liability, as the value attributable to goods or services supplied on redemption is regarded as nil. 

Conclusion

The court held that the airtime voucher can be used to make and receive calls, send messages, and use the internet and data. It considered that the ‘airtime’ can be used for multiple purposes, but that it does not change the nature of the voucher being for specific goods or services. Therefore, an airtime voucher is not akin to a gift voucher, which is a means of payment for goods or services but rather falls within the ambit of specific goods or services as envisaged in section 10(19). Therefore, the VAT should be accounted for at the time the voucher is sold. 

Link to article source: https://www.pwc.co.za/en/assets/pdf/synopsis/synopsis-february-2021.pdf

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