The VAT effect of the issue of vouchers

Vouchers are becoming popular in online retail. A wide variety of vouchers exist, and they differ in form, value as well as the goods or services to which the holder of the voucher is entitled to.

The VAT Act makes provision for three specific categories of vouchers:

• Monetary vouchers;
• Product-specific vouchers; and
• Discount vouchers.

A monetary voucher is for unspecified goods or services to be supplied in the future and is dealt with in section 10(18) of the VAT Act. The nature of the goods or services to be supplied on redemption on such voucher is unknown at the time of the sale of the voucher. The supply of such vouchers is not a supply for VAT purposes. As a result, the voucher is not subject to VAT upon the issue thereof.  VAT is only levied when the goods or services are actually supplied.

Product-specific vouchers fall within the scope of section 10(19) of the VAT Act. These vouchers are subject to VAT at time they are issued. The reason therefore is that the goods or services to be supplied are specified on the voucher. Upon the supply of the goods or services, the surrender of the voucher is deemed as nil.

Discount vouchers, which are dealt with in section 10(20) of the VAT Act, are mostly published in newspapers or magazines or are provided in store due to promotions. No consideration is paid for these vouchers. These vouchers are normally issued by the manufacturer or the service providers who will then reimburse the supplier of the goods or services with the discount value offered upon redemption of the voucher. The supplier of the goods or services levy VAT on the full value of the goods or services (before the discount). The manufacturer or service provider (who issued the vouchers) is entitled to an input tax deduction based on payments made to the supplier who honoured the vouchers.

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