Quantifying tax revenue on customer loyalty rewards : the case of Dis-Chem in South Africa

Abstract

The greatest method to produce resources and to reduce the tax collection shortfall is to grow the economy and broaden the tax base, according to the South African Minister of Finance's 2022 Budget Speech. In 2021 alone, Customer Loyalty Programmes (CLPs) were used by 74 percent of economically active South Africans and have increased in popularity in recent years. The receipt of CLP points is not taxed in the hands of customers, while the expenses associated are being deducted by businesses in calculating their taxable income.

This study quantifies the potential tax revenues that may be collected should a tax be introduced on CLP rewards, using existing tax systems in order to broaden the tax base and increase tax revenues in South Africa.

To quantify these tax revenues, this study focused on one CLP in South Africa (the Dis-Chem Benefit CLP) in the form of a longitudinal case study from 2018 to 2022.

The findings revealed that at least R237 million in potential tax revenues could be collected from just one CLP in South Africa from 2018 to 2022 (Dis-Chem Benefit CLP) should a withholding tax of 25 percent be employed as proposed. While this research forms part of a larger study and is focused on the Dis-Chem Benefit CLP, the findings indicate that an introduction of a tax on CLPs in South Africa would also yield additional much needed tax revenues.