Despite the VAT Act lacking explicit provisions for apportionments, the Constitutional Court ordered Sars to develop a methodology for the same. File picture: Henk Kruger / Independent Newspapers
By Sinovuyo Mbatani
The Constitutional Court’s ruling in the case of Capitec Bank versus the South African Revenue Service (Sars) will have implications for tax law in South Africa.
At the heart of the matter was a contentious dispute over the deduction of input Value Added Tax amounting to a staggering R71 million, claimed by Capitec Bank.
The court's decision, however, was not a sweeping victory for either party.
“Sars emphasised that the judgment should not be extrapolated beyond this case,” it cautioned against broad generalisations.
Initially, Capitec sought to deduct the full R71 million, only to face a decisive rejection from the court.
“That is a battle that it has lost,” the ruling stated unequivocally.
The Supreme Court of Appeal had previously ruled in favour of Sars, suggesting an 8% to 10% apportionment of costs.
However, the Constitutional Court disagreed, noting that Capitec's fees generated a surplus covering other lending costs, warranting an apportionment.
Despite the VAT Act lacking explicit provisions for such apportionments, the Constitutional Court ordered Sars to develop a methodology for the same.
While Sars retained its success from the SCA, the court's ruling required Sars and Capitec to work together to determine an appropriate apportionment methodology.
This decision marks a significant development in South African tax law, highlighting the complexity of VAT claims and the importance of detailed financial assessments in such cases.
IOL