The case between Capitec and the South African Revenue Service is seen as a “pivotal analysis in the realm of tax law ” that clarifies important value-added tax principles.
In its Vat return for November 2017 Capitec deducted an amount of R71.5 million – the tax fraction that Capitec paid to customers as loan cover. Sars disallowed the claim and Capitec objected and appealed the decision to the tax court. In its testimony before the court Capitec stated that the free loan cover placed it “in a good competitive position relative to other credit providers” and it was a “marketing benefit”.
There was no doubt that Capitec would not have provided loan cover to its unsecured borrowers unless the interest and fees it expected to earn from the loans covered all its costs. “To allow Capitec a full deduction would disturb the scheme of the Vat Act in that deductions against output tax are only permitted in respect of inputs consumed, used or supplied in the course or furtherance of the taxable activity.”
Sars and Capitec are now required to engage in order to determine an appropriate apportionment methodology.
Source: Law Daily Report (lawdailyreport.net)
Capitec Tax Law South African Revenue Service Vat Deduction
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