A recent Tax Court judgment has clarified the VAT treatment of cashback rewards programmes and allowed input tax deductions to be claimed. In the case (VAT 32666), the court found that a bank was entitled to deduct input tax under section 21(1)(c) of the Value-Added Tax Act 89 of 1991 ("the VAT Act") in respect of its cashback rewards program, where the cashback operated to reduce customers' monthly service fees. Vendors operating similar rewards programs should assess whether the same principles could apply to their own arrangements and unlock potential tax benefits they may currently be overlooking.
Background
The Bank introduced a cashback rewards scheme to protect its market share in a competitive market. Clients holding accounts were charged a monthly service fee (a taxable supply subject to VAT) and could receive a credit of up to 100% of that fee, labelled a "monthly fee rebate" if they met qualifying criteria, including maintaining credit facilities with the Bank and keeping
