SARS wants to avoid another Capitec loss
The National Treasury wants to iron out the small ambiguities that exist in South Africa’s finance laws that led to a bruising VAT loss for the South African Revenue Service (SARS) against banking group Capitec in 2024.
Among a host of proposed changes contained in the draft Tax Laws Amendment Bill (TLAB) making its way through parliament, the National Treasury is proposing a small amendment to the definition of “insurance”.
Under the current tax laws, the definition of “insurance” in s1(1) means insurance or guarantee against loss, damage, injury or risk of any kind whatever, whether pursuant to any contract or law.
Notably, in terms of “contract of insurance”, the laws do not provide that a consideration be charged.
This tiny discrepancy in the laws carried a significant cost for SARS, which found itself taking on banking giant Capitec in an eight-year legal battle over a R71.5 million VAT claim.
The case revolved around a R71.5 million VAT claim by Capitec, dating back to 2017, made on free loan cover offered by the bank on its unsecured loans.
Capitec lends money to unsecured lenders as part of its business. Although Capitec did not charge fees for providing loan cover, it did charge interest, initiation, and service fees on the cover.
Thus, Capitec did not charge VAT on interest, but it did on the fees it levied. It subsequently claimed input tax deductions attributable to the charging of those fees.
SARS rejected these claims. Following SARS’s disallowance, Capitec took the appeal to the tax court, which upheld the appeal and set aside SARS’ additional assessment.
The tax court said that the service fees charges Capitec were part of the consideration payable for the provision of credit.
However, SARS saw success at the Supreme Court of Appeal, which found that Capitec was a credit provider and not an insurer, and the provision of credit was an exempt supply.
When it finally ended up in the hands of the Constitutional Court, the unanimous ruling fell (mostly) in Capitec’s favour.
In a very niche reading of the laws, the apex court ruled that the supply of insurance for no consideration is indeed a taxable supply, or at least partly a taxable supply.
This is because of the fact that the appellant (in this case Capitec) provided the insurance free of charge when it granted a loan to a customer.
It set aside SARS’ rejection of the claim and sent it back for the taxman to reassess.
At the time, SARS stressed that, despite the loss, Capitec still did not qualify for the full R71 million claim, and that the circumstances for this interpretation of the laws was extremely specific.
Despite this, the National Treasury now wants to iron out any potential for a repeat, and is now proposing that the definition of insurance be changed to specifically incude the requirement that a premium be charged.
The definition change is just one of many proposed VAT changes currently being processed by parliament in the draft TLAB and Tax Administration Laws Amendment Bill (TALAB) for 2025.
The bills were published for public comment on 16 August 2025 and contain the remainder of the tax announcements made in the 2025 Budget Review.
Because of the delayed budget process this year, the bills are still going through workshops and engagement processes, but are expected to be tabled by the Minister of Finance during the 2025 MTBPS.
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