Tax cases

This tax case is an Appeal from the Gauteng Division of the High Court, Pretoria. It is with respect to the VAT treatment of pre-paid vouchers and whether it falls under section 10(18) or 10(19) of the VAT Act.

MTN applied to SARS for a ruling in terms of section 41B of the VAT Act, requesting that the sale of pre-paid vouchers be treated under section 10(18) rather than 10(19) of the VAT Act. At a high level, 10(18) provides that VAT must be accounted for on utilisation of the voucher by the holder whereas section 10(19) provides that VAT must be accounted for when the pre-paid voucher is sold. SARS issued a ruling that section 10(19) applies. MTN sought relief from the High Court which was dismissed. MTN accordingly appealed against SARS’ decision which the Court dismissed with costs. 

Facts

“MTN provides a range of services to customers. As part of its offering, MTN sells what it refers to in the papers as ‘prepaid multi-purpose vouchers’ (the pre-paid vouchers). Historically, the sale of the pre-paid vouchers was dealt with by MTN as falling under s 10(19) of the Value-Added Tax Act 89 of 1991 (the Act). On 15 November 2017, MTN sought a private binding ruling from SARS under s 41B of the Act, to the effect that the sale of the pre-paid vouchers could thenceforth be dealt with as falling under s 10(18) of the Act.”

“On 4 April 2019, after an extensive exchange of correspondence, SARS issued a private binding ruling to the effect that s 10(19), and not s 10(18), of the Act applied. Aggrieved by the ruling, MTN approached the Gauteng Division of the High Court, Pretoria, (the high court) for the following relief:

‘1. Declaring that the supply by the Applicant of pre-paid tokens or vouchers for a

consideration denominated in Rand, entitling the holder to receive available services and products on the MTN mobile network, as selected by the holder, to the extent of the monetary value stated on or attributed to the tokens or vouchers (multi-purpose vouchers), constitutes a supply as envisaged in section 10(18) of the [Act].

2. Declaring, accordingly, that the supply of such token or voucher is disregarded for the purposes of the [Act], except to the extent (if any) that the consideration for the multi-purpose voucher exceeds the monetary value stated thereon.

3. To the extent necessary declaring to be incorrect and/or setting aside the ruling issued by the Respondent on 4 April 2019, to the effect that the pre-paid vouchers fall within the ambit of section 10(19) of the [Act] and that value-added tax must accordingly be accounted for by the Applicant when the voucher is sold to the subscriber.

4. Directing the Respondent to pay the costs of this application.’

The high court, per Hughes J, entertained the application for declaratory relief but dismissed the application with costs. It is against that order that MTN appeals, with her leave.”

Issues

“In essence, this appeal relates to two main issues. The first is whether seeking a declaratory order was appropriate in the circumstances. The second is whether, if so, the ruling of SARS was incorrect.”

Finding

The court held that, “… the application for declaratory relief was not appropriate in this matter. That being the case, the second issue in the appeal as to whether the ruling was correct or not need not, indeed cannot, be decided. This all means that, although the high court incorrectly entertained declaratory relief, it was correct in dismissing the application. The appeal must therefore fail. Both parties agreed that the costs should follow the result. The use of two counsel was warranted.”

The application is dismissed with costs, including the costs of the two counsel.

Find a copy of the court case here.

26 January 2023