An analysis of the VAT treatment of vouchers in South Africa

Abstract

There is a huge development in the gift card market because of various factors, which includes the rapid developing technological environment. This will also cause an increase in expiration or non-redemption of gift cards. This developing market makes it necessary to consider the implications regarding possible value-added tax consequences. This study focuses on describing the commercial nature and function of the different types of vouchers, the classification thereof, the possible permutations of voucher transactions and any related non-redemption in the retail sector. A Three-stage model, representing the transactional flow of a gift card transaction is described and then adjusted for each of the main voucher/gift card categories and sub-categories to fit the characteristics and nature of a voucher related transaction. Thereafter, the South African VAT legislation is analysed by way of the Three-stage model to determine how and why the different types of vouchers are taxed in certain ways and whether the application regarding the voucher VAT legislation is clear and comprehensive. The basic principles of the VAT legislation are also applied to the identified voucher related transactions. Voucher specific VAT legislation is also explained and any shortfalls in the legislation are highlighted.