DUTY FREE NOT VAT FREE Master Currency v CSARS (155/2012) [2013] ZASCA 17 (20 March 2013)

Abstract

In Master Currency v CSARS ((155/2012) [2013] ZASCA 17 (20 March 2013)) the court had to address the question of whether services supplied by Master Currency were subject to a zero rating. This case is of particular interest as it addresses the VAT implications of services supplied in a duty-free area of an airport. Hence, it was questioned whether a service rendered in a duty-free area will be subject to VAT.
A duty-free area or zone is an area or zone within which goods and services may be supplied without being subject to customs duties. The IBFD International Tax Glossary defines “Duty-free zone” as follows: “[z]one usually next to an international port or airport where imported goods may be unloaded, stored and reshipped without payment of customs duties or other type of indirect tax, provided the goods are not imported” (140). The importance of this definition is that it specifically refers to “other type[s] of indirect taxes” also not being leviable in the duty-free area. It is important to note that the Customs and Excise Act (91 of 1964) does not define “duty free” or “duty-free area”.
The South African value-added tax (hereinafter “VAT”) is a tax on the consumption of goods and services in the Republic of South Africa. Accordingly, the Value-added Tax Act 89 of 1991 (hereinafter “the Act”) and, accordingly, references to sections in this note are to sections of the Act, unless otherwise expressly stated, provides for three instances where goods and services will be considered to be consumed in South Africa and thus be subject to VAT. The first instance will be when a vendor supplies goods or services in the course or furtherance of an enterprise in South Africa. The second instance is when goods are imported into South Africa by any person, and lastly when imported services are supplied to any person in South Africa.

The supply of domestic goods and services is taxable in terms of section 7(1)(a) of the Act. Imported goods and services are subject to VAT firstly because they are destined for consumption in South Africa. Moreover, it is essential for these goods and services to attract VAT consequences, otherwise imported goods and services would enjoy a competitive price advantage over equivalent local goods and services as the latter would be subject to VAT in terms of section 7(1)(a). Thus the taxation of imported goods and services creates an equal competitive footing with the domestic goods and services. Bearing in mind that VAT is a tax on consumption it follows that exportation of goods and services from South Africa are subject to tax at a zero-rate as the consumption will not take place in South Africa. As a general matter, the supply of these goods is taxable in the country where they are destined to be consumed. The zero-rating ensures that no double taxation ensues in that an exporter will not be taxed in South Africa and again in the export country (“export country” refers to any place that is outside South Africa).