VAT on Prepaid Vouchers - BGR 72
On 21 May 2024, SARS released BGR 72, outlining the details that must be included in a credit note that a telecommunications firm must provide to a prepaid subscriber under the conditions specified in section 21 (1)(f) for the application of sections 16(2)(a) and 16(3)(a)(v) of the VAT Act.
Background
During the initial stages of the mobile telecom sector in South Africa, prepaid customers of mobile telecom services were restricted to using prepaid coupons exclusively for buying the services provided by that specific mobile telecom firm, like calls and text messages.
Prepaid coupons are typically purchased by retailers and distributors, who then sell these prepaid coupons to their customers. The progression and tech improvements in the telecom sector have enabled users to utilize the designated services bought from the telecom firm to obtain additional services from third-party service providers. This encompasses, for instance, the provision of financial services (both long-term and short-term insurance), along with music or movie downloads, and mobile money services offered by third-party service providers.
In the event that the subscriber procures additional services, the telecom firm is unable to provide a credit note, given that it fails to fulfill the stipulations of paragraph (i) under section 21 (1). This is due to the fact that the tax invoice was not issued to the subscriber by the supplier, as these vouchers are distributed to subscribers through a variety of intermediaries.
Should a prepaid user procure services from an external provider, it is mandatory for the external provider to account for the output tax on that provision, given that it is a taxable provision.
Hence, it is inferred that both the telecom firm and the external provider are responsible for paying output tax to SARS;
- the telecom firm at the moment when the prepaid coupon is purchased, and
- the external entity, insofar as the services are provided by this external entity.
In these cases, the telecommunications provider forwards the funds gathered on behalf of the third-party provider to that provider, without any recourse for the telecommunications firm to issue a credit note under section 21 or write off uncollectible debts under section 22.
Legislative Amendment
Section 21(1) was changed on 1 April 2024 due to the challenges mentioned earlier. The change was made to address situations involving prepaid vouchers. These vouchers are issued by registered vendors who are electronic communications service licensees. The change specifically focuses on cases where the vouchers have been significantly altered.
In this case, the telecom firm would have submitted a return where an erroneous amount of output tax was reported as envisaged in paragraph (ii) of section 21(1). As a result, the telecom firm is permitted to make a modification as per section 21(2).
Section 21(3)(a)(iii) mandates that the details of the recipient must be indicated on a tax invoice, except when the credit note pertains to a supply less than R5000 for which a tax invoice was previously issued under section 20 (5).
The ambiguity in the sector regarding the specifics needed on a credit note due to the implementation of section 21(1)(f) is addressed in this BGR. It elucidates the acceptable structure of the credit note and the details that must be included on such an invoice to meet the deduction requirements under section 16(3)(a)(v) in conjunction with section 16(2)(a).
Credit Note Requirements
The telecom firm is required to provide an electronic credit note to the customer, who will then receive an SMS notification indicating that the mentioned credit note can be downloaded.
The credit note must contain the following particulars:
- The term "credit memo".
- The vendor's name, address, and VAT registration number.
- The recipient's name, address, and VAT registration number (if they are a registered vendor), unless the credit note pertains to a supply for which a tax invoice, as outlined in section 20(5), was previously issued.
- The issuance date of the credit note.
- Either:
- the reduction in the value of the mentioned supply displayed on the prepaid subscriber's account and the quantity of the surplus tax; or
- if the tax levied on the supply is determined by applying the tax fraction to the reduced consideration amount, and either the excess tax amount or a declaration that the reduction incorporates a tax amount and the tax rate included
- A concise description of the situation that led to the issuance of the credit note.
- Adequate details to recognize the transaction the credit note is associated with.
The aforementioned credit memo, containing the necessary details, must be kept for a duration as stipulated in accordance with section 55 in conjunction with Part A of Chapter 4 of the Tax Administration Act 28 of 2011.
If the supply surpasses R5 000, and the telecom firm lacks the necessary information as per section 21(3) (a)(iii), the firm is permitted to ask the prepaid user to fill in their personal information and VAT registration number prior to downloading the credit note from the system.
Validity Period
BGR 72 is effective from April 1, 2024, and remains in force until it is revoked, modified, or the corresponding law is altered.
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