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Thread: Gift vouchers and VAT

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    Question Gift vouchers and VAT

    Hey all,

    I'm hoping someone can help. I was wondering if anyone has experience with Gift Vouchers (retail) and how VAT should be applied. For example, say I have an online shop and I wanted to sell a R100 gift voucher. The voucher can be redeemed at a later stage and used against multiple or single purchases until the credit is used up. The problem is that I can't seem to find any information on how this is meant to work if you're VAT registered. The logical process is that the vouchers should be sold at 0% VAT. This is because when its redeemed and used, the sale of the items will attract VAT anyways. If VAT was applied to the sale of the voucher as well, it means you're paying double VAT. The problem is that I can't find any information on this on the SARS website to clarify.

    The second question relates to the above. What happens if you giveaway a voucher in a promotion or competition? When the person comes to redeem it, the sale will attract VAT, but then you're paying VAT on top of the loss of the R100? This is the part I really don't have a clue how it's meant to be handled without it being a major loss to the company, and paying VAT on something you're essentially giving away. The only way that seems logical here is that promotional vouchers discount the overall sale. So, if you apply a R100 voucher to a R70 sale, it'll discount it by 100%, making the total R0 (and so 14% of R0), and leaving the user with the R30 credit left over.

    I've approached SARS about this, but it's been 2 months now and no one seems to know the right answer. It's sitting with their legal team, but I'm not sure whether I'm going to get a response. I find it odd though, as this is a common thing in retail, yet there's absolutely no information (that I could find) about how it's meant to work

    Any help would be most appreciated.

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    Paid for gift vouchers are not a taxable supply. Here is SARS' take on the whole issue:

    DISCOUNT VOUCHERS AND COUPONS

    There seems to be some uncertainty as to the VAT implications of discount vouchers and therefore a few basic guidelines are provided. There are four different kinds of vouchers:

    Gift vouchers:
    The original purchase of the vouchers is disregarded for VAT purposes as it does not constitute consideration for a supply of goods or services. VAT is levied on the full selling price when these vouchers are used as payment for goods purchased.

    Coupons (e.g. milk):

    VAT is levied at the stage when the coupons are sold, but not when they are exchanged for goods.

    In-store discount vouchers:

    These are treated as a discount and VAT should be calculated on the nett selling price of the goods after the discount on the voucher has been taken into account (normal exclusive price, less discount, plus 14%).

    Manufacturer’s discount vouchers:
    When the voucher is issued free of charge by the manufacturer, the monetary value of the voucher must include VAT.

    The retailer accounts for VAT on his normal selling price when the voucher is surrendered by his customer as part payment for the goods purchased. The amount claimed from the manufacturer (or discount clearing house) is not subject to VAT.

    The manufacturer is entitled to an input tax deduction of 14/114 of the monetary value of the voucher when he redeems the voucher.
    Last edited by CLIVE-TRIANGLE; 11-Jul-13 at 08:35 AM.

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    Thanks so much, Clive-Triangle! That helps a lot. I see now that it comes from VAT News 4 - December 1995 (my Googling skills obviously aren't up to scratch. And nor are SARS :P).

    So, according to the above, we'd declare a Gift Voucher item on a tax invoice as NON-VAT?

    Using the wording above, I was able to track down more information in regards to how to tackle a Gift Voucher which is given away. According to this Draft Interpretation Note ( http://www.sars.gov.za/AllDocs/Legal...20Discount.pdf ), Vouchers supplied at discount attract VAT at full price. Ie. if you supply a voucher of R100 for R80, or perhaps free, you'll still have to pay VAT on R100 when it's redeemed. Seems to make it pointless and costly giving away Gift vouchers, if that's how the law applies it. Makes more sense to give away stock, as you'll only be loosing out on the value of the stock, not the stock + VAT on full price.

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    Maybe I'm mixing up a Discount Voucher versus a Voucher supplied at a discount rate. So all I need to do is say I'm giving away a Discount Voucher for say R100, and that gets applied as "in-store discount", so the Draft Interpretation Note doesn't actually apply to promotional vouchers, and I can giveaway vouchers without paying VAT on that amount when redeemed?

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    I would agree with you.

    To clarify the gift voucher issue, this is what I suggest.

    The sale of the voucher - Debit Cash, credit Provision for unredeemed vouchers.
    Vouchers redeemed - Credit Sales and Vat, debit Provision for unredeemed vouchers.

    The advantage is that you automatically provide for unredeemed vouchers.

    Expired vouchers would result in a debit to the provision and a credit to an appropriate income item.

    I think..

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    Quote Originally Posted by CLIVE-TRIANGLE View Post
    I would agree with you.

    To clarify the gift voucher issue, this is what I suggest.

    The sale of the voucher - Debit Cash, credit Provision for unredeemed vouchers.
    Vouchers redeemed - Credit Sales and Vat, debit Provision for unredeemed vouchers.

    The advantage is that you automatically provide for unredeemed vouchers.

    Expired vouchers would result in a debit to the provision and a credit to an appropriate income item.

    I think..
    What about VAT on expired vouchers?
    Only stress when you can change the outcome!

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    IanF I thought about that, but I am relying on SARS' own opinion:

    Gift vouchers:
    The original purchase of the vouchers is disregarded for VAT purposes as it does not constitute consideration for a supply of goods or services. VAT is levied on the full selling price when these vouchers are used as payment for goods purchased.

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    Thanks for everyone's help. Got something to give SARS next time they call me to say they're still investigating :P

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