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Tuesday, 16 April 2024 22:06

SARS welcomes Concourt ruling as Capitec wins dispute over VAT refunds.

By Lehlohonolo Lehana.

The South African Revenue Service (Sars) has maintained it was vindicated by the judgment of the Supreme Court of Appeal which ought to have awarded a modest 8% to 10% apportionment of the tax apportionment to Capitec Bank.

The Concourt this week ruled in Capitec's favour over a R71 million rand tax dispute with SARS.

In the protracted legal battle that has been going on since 2017, Capitec was denied a R71 million VAT refund by the revenue service, which the bank said it was owed on fees levied for loan insurance cover it offered clients free of charge.

SARS had argued – successfully up until the Supreme Court of Appeal – that supply of the loan cover did not constitute a taxable supply because it was offered for no consideration (free of charge).

However, the Concourt ruled differently, saying on 12 April that the loan cover offered by Capitec was part of "mixed supply" as part of it conducting its business, and that even unpaid fees are still characterised as fees.

"SARS should not have disallowed the deduction in full and should have permitted a partial deduction."

"Although Capitec did not plead partial deduction as an alternative, the Court found that it should not be penalised for its failure to do so, as SARS should not seek to exact tax which is not due and payable," the apex court said.

In response, SARS said that it welcomed the clarity and certainty it brought – but stressed that the ruling was only narrowly applicable to this one case with Capitec and "uniquely specific" to this instance.

It also clarified that Capitec in no way was going to get the full R71 million return it initially applied for.

"Originally Capitec sought to deduct the full amount of R 71 million as an input claim, however the court noted 'That is a battle that it has lost'," SARS said.

The revenue service also claimed "substantial victory" in the lower courts, which was unchanged by the Constitutional Court ruling.

"The Constitutional Court found that Capitec's initiation and service fees generated a surplus that covered other lending costs, and that an apportionment was appropriate," it noted.

"The Constitutional Court recognised, nevertheless, that the VAT Act makes 'no explicit provision for apportionment in this situation' and therefore ordered SARS to consider an apportionment methodology."

SARS said it would now engage with Capitec to determine an appropriate apportionment methodology.