Value added tax ("VAT") is not a tax that is levied on
revenue or receipts. For VAT to be levied, there must be a
supply of goods or services by a vendor (section 7(1)(a) of the
Value Added Tax Act, No 89 of 1991 ("the VAT Act")
refers). If there is such a supply, then the VAT is payable
on the consideration received by the vendor for the supply
made. The definition of "consideration" in section
1 of the VAT Act further excludes a deposit, unless the supplier
applies the deposit as consideration for the supply, or if the
deposit is forfeited.
One can therefore accept that in principle, if no supply is
made, then there is no liability for VAT. This principle was
applied by the European Court of Justice ("ECJ") in Case
C-277/05, where the ECJ held that a deposit paid by a client to an
hotelier for the reservation of a room is not subject to VAT when
the client does not arrive and forfeits the deposit.
