Taxpayer Bank Ltd vs CSARS

Case Information

Court: Tax Court of South Africa (held at Megawatt Park, Johannesburg)

Case number: VAT 32666

Applicant: Taxpayer Bank Limited

Respondent: The Commissioner for the South African Revenue Service (SARS)

Jurisdiction: South Africa

Judgment date: 18 March 2026

Judgment Summary

This is an appeal in terms of section 107 of the Tax Administration Act 28 of 2011 against SARS's disallowance of input VAT deductions of R5 551 275.52 claimed by the Taxpayer for the tax period August 2020 to July 2021 [2, 7.1, 7.2].

The Taxpayer, a banking group operating through divisions including Bank A, Bank B and Bank C, introduced a cashback scheme under which monthly banking service fees debited to clients' transactional accounts were credited back to qualifying clients who met specified criteria [1, 13.2].

SARS contended that the credits did not constitute a credit note event under section 21(1)(c) of the VAT Act 89 of 1991, arguing instead that the credits represented payment for a separate service rendered by the client through behavioural compliance [7, 16, 17].

The court held that the jurisdictional requirement of section 21(1)(c), namely that the previously agreed consideration must have been altered by agreement, was a purely factual enquiry, and that the evidence established such an alteration on a balance of probability [19, 20, 24]. The appeal was upheld and SARS was ordered to allow the deduction. Costs were not awarded to the Taxpayer [30].

Background

The Taxpayer is a company incorporated in South Africa that provides banking and associated services through divisions known as Bank A, Bank B and Bank C, and is a member of the Taxpayer Group [1].

On 4 October 2022 SARS issued a Finalisation of Audit Letter and additional VAT assessments for the tax period August 2020 to July 2021, disallowing R5 551 275.52 in input VAT deductions claimed by the Taxpayer [3].

The Taxpayer lodged an objection on 21 October 2022, which SARS disallowed on 1 June 2023. The Taxpayer submitted a notice of appeal on 9 June 2023, and SARS filed its Statement of Grounds of Assessment in terms of Rule 31 on 31 January 2024 [3].

The Taxpayer introduced a cashback scheme to protect and increase its share of the credit provision market in competition with another banking services provider that offered competitive fees [11]. Under the scheme, the monthly banking service fee debited to a client's transactional account was credited back to that account after the client met qualifying criteria [11, 13.2].

The qualifying criteria required the client to hold credit facilities with the Taxpayer, such as a personal loan or motor vehicle finance, and to keep all accounts in good standing. The electronic-cash scheme, a points-based rewards incentive, was used solely as a yardstick to determine whether a client's accounts were in good standing [11, 12, 13.5].

The monthly bank statement sent to clients was common cause to constitute a tax invoice compliant with section 20 of the VAT Act [7.8, 7.10]. The Taxpayer accounted for output VAT on the full monthly account fees charged [7.3, 7.9]. Qualifying clients received a credit labelled 'Monthly fee rebate' on their bank statements [paragraph 9 of the additional joint practice note].

Core Dispute

The central dispute was whether the crediting of monthly banking service fees to qualifying clients' accounts under the cashback scheme constituted an alteration of the previously agreed consideration as contemplated in section 21(1)(c) of the Value-Added Tax Act 89 of 1991, thereby entitling the Taxpayer to deduct R5 551 275.52 as input VAT in terms of section 21(2)(b) [5.2, 8].

The Taxpayer contended that the credits represented a reduction of the agreed monthly service fee and that the VAT component of that reduction was accordingly deductible as input VAT [5.2].

SARS contended that there were two separate and distinct transactions: first, the supply of banking services for which the client paid the agreed fee; and second, a transaction in which the client performed behavioural actions (joining the electronic-cash programme, holding an active personal loan, maintaining accounts in good standing) for which the Taxpayer paid the client by crediting the account. SARS argued that the cashback was therefore consideration paid for a separate supply by the client and was not a credit note event [16, 17].

Court Findings

The court found that section 21(1)(c) of the VAT Act does not require any specific motive or stated reason for reducing the previously agreed consideration, and that the fact that the original supply remained unchanged was irrelevant to the enquiry [18].

The court held that the requirement to trigger section 21(1)(c) is that the previously agreed consideration for a supply must have been altered by agreement with the recipient, whether due to a discount or for any other reason, and that this is a purely factual enquiry to be established on a balance of probability [19].

The court found that the Taxpayer established through common cause facts and unchallenged evidence that clients were invited by the Taxpayer, through advertising and electronic communication, to obtain a reduction of their bank fees upon meeting specified criteria, and that the fees were duly credited to qualifying clients' accounts in fulfilment of that arrangement [20].

The court found that the SARS argument, that the credits represented payment for a service rendered by the client through behavioural compliance, was based on a conflated interpretation of unrelated sections of the VAT Act, and that it impermissibly elevated certain facts in isolation while ignoring the evidence as a whole [22].

The court found that the reference to 'for any other reason' in section 21(1)(c) is sufficiently wide to encompass a reduction of consideration for reasons unrelated to the nature of the enterprise's operations [21].

The court found that section 21(1)(c) does not prescribe any specific time period between the original supply at an agreed consideration and the alteration event [19].

The court found that the jurisdictional and administrative requirements of sections 21(1)(c) and 21(2)(b) of the VAT Act had been met [24].

On costs, the court found that it could not make a finding of unreasonableness against SARS of the degree required by section 130 of the Tax Administration Act, and declined to award costs in favour of the Taxpayer [29, 30].

Outcome

The appeal was upheld. SARS was ordered to alter the additional assessment to allow the deduction of R5 551 275.52 for the tax period August 2020 to July 2021 [order, paragraph 2].

The alternative relief claimed by the Taxpayer in its Rule 32 statement was held to be moot in light of this finding [25].

No order as to costs was made [30].

Major Issues / Areas of Contention

• Whether the crediting of previously charged monthly banking service fees to qualifying clients' accounts under the cashback scheme constituted an alteration of the previously agreed consideration within the meaning of section 21(1)(c) of the Value-Added Tax Act 89 of 1991.
• Whether the cashback credits represented payment for a separate supply of services made by the client to the Taxpayer, rather than a reduction of the agreed consideration for the Taxpayer's banking services.
• Whether the jurisdictional requirement of section 21(1)(c) demands any specific motive or reason for the reduction in the previously agreed consideration.
• Whether section 21(1)(c) requires the alteration of the original supply itself as a condition for reducing the previously agreed consideration.
• Whether SARS's conduct in maintaining and evolving its grounds for disallowance met the threshold of unreasonableness required for a costs order under section 130 of the Tax Administration Act 28 of 2011.

Read the full judgment (PDF) (Source: SARS)