An analysis of the VAT consequences of customer loyalty programmes for suppliers

Abstract

The VAT taxability of customer loyalty programme benefits in South Africa is an issue of uncertainty, for taxpayers and SARS. Customer loyalty programmes are growing in popularity, both in terms of existing programs’ membership and participation numbers and an increase in the number of businesses that operate customer loyalty programmes. Clarifying the VAT taxability of customer loyalty programme benefits, therefore, has the potential to significantly increase the VAT revenue collected by SARS without making extensive and costly changes to the existing VAT systems and legislation already in operation. This is an issue of relevance to SARS and National Treasury since the South African Government have been battling with an increasing budget deficit in recent years and has a pressing need to find additional sources of revenue in an attempt to urgently reduce the aforementioned deficit. This study aims to clarify the VAT taxability of loyalty points customers receive as a result of participating in customer loyalty programmes. The study considers the relevant current South African legislation and the limited guidance published by SARS on this topic in order to conclude on the VAT taxability of loyalty points earned by customers. Further, the study performs an international comparison by considering the relevant Canadian legislation and court cases and subsequently by comparing it to that of South Africa.