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Africa's largest mobile operator MTN has lost a court battle over when it must account for value-added tax (VAT) on prepaid vouchers, with the Supreme Court of Appeal (SCA) dismissing its appeal with costs on Monday.
MTN had previously sought a private binding ruling from the Commissioner for the South African Revenue Service (SARS) that the prepaid vouchers fell under the provisions of section 10(18) of the Value-Added Tax Act rather than section 10(19) which had previously been applied, a summary of the judgment reads.
Section 10(18) in essence attracts VAT at the time the voucher is used by the customer to obtain services rather than on its initial sale to the customer. The Commissioner’s ruling was against MTN, and said section 10(19) actually applied.
MTN then approached the North Gauteng High Court in Pretoria for declaratory orders to the effect that the prepaid vouchers fell under section 10(18). The court entertained the application for declaratory relief but refused the application on its merits.
Considerable difficulty was experienced during argument in obtaining clarity on the nature of airtime as used by MTN and how the prepaid vouchers function in practice, the SCA judgment reads.
This also applied to the question of whether the services offered were specified by usage or arrangement. This is not a matter where there is a set of clear, sufficient, uncontested facts, the judgment read, and differed markedly from other matters when courts had entertained applications for declaratory orders in tax matters.
Instead, the matter was better suited for the dispute resolution procedures allowed for under the Tax Administration Act, the court found.
"That being the case, the merits could not be considered and the application was correctly dismissed by the high court, albeit for different reasons. As a consequence the Supreme Court of Appeal refused the appeal with costs," the summary said.
