RENNIES Travel says it is prepared to continue with its legal quest – regardless of further financial support from the industry – to change how the South African Revenue Service (SARS) has chosen to interpret tax laws concerning how VAT is applied on bonus commissions earned on certain international airline bookings.
After an initial unfavourable court ruling was handed down in December 2020, Rennies expects the matter will only be resolved after it is heard by the South African Supreme Court of Appeal (SCA) next year.
Industry VAT rules, specifically how VAT is applied to bonus commissions on bookings for international airlines registered in South Africa, has been a serious worry for the retail trade for almost four years.
Despite numerous attempts by Asata to persuade SARS to review its interpretation of the rules, Rennies eventually found itself at the legal end of what Asata regards as an ‘important industry test case’.
BidTravel ceo, Lidia de Olim Folli, told Travel News that the business was currently awaiting a court date. “Our status on the matter at present is that our attorneys have submitted all the required submissions to the SCA. SARS has a few weeks to lodge their heads of argument. We then wait for a court date, which we have been advised is unlikely to be this year.”
Penalties
Although Rennies did not disclose any background details of its case, or monetary values involved, other companies are known to have been hit with hefty penalties from SARS after being audited.
The owner of a corporate travel agency in Port Elizabeth, who spoke to Travel News on condition of anonymity, said their business had to pay in R100 000 before SARS would issue an updated tax certificate.
“The initial pitch was that the override commission on international overrides have never attracted VAT. International air tickets do not attract VAT because those suppliers are not SA (South Africa) VAT registered. SARS decided that it would question this. Initially, SARS audited us on all international carriers. I pointed out, as did Asata, that only three international carriers are SA VAT registered… and SARS toned down its audit,” said the business owner.
The agency owner said there had been a SARS ruling “way back, when airlines still gave commission on all air tickets, before we started charging professional fees”. That ruling said that no VAT was charged on international overrides. “When I questioned SARS and Asata, SARS came back saying the rule was defunct and that the trade should have asked SARS for a new ruling.”
“There is no question this is a plan to derive cash from a source based on wishy-washy rulings, and travel is a soft target. I don’t think that many agencies are aware they could even be audited.
“Because SARS has only audited a couple of groups, and our one sole agency, not many are aware. I believe, as does my tax consultant on this matter, that SARS was ‘feeling the water’ with this process and wanted to see if they would win the case. Then they can go after everyone,” the executive said.
Costs
During this year’s AGM in August, Asata ceo, Otto de Vries, told members that financial support had been extended to Rennies to help toward legal costs and provide for a legal expert to oversee the process. Although Lidia said that contribution had helped during the initial court case, those funds have been used up and the business expects it will now carry its own legal costs.
While the industry awaits the outcome of Rennies’ appeal, Otto was resolute that the rules have not always been applied this way, and that the industry has “history on its side”.
He concluded: “What we need is a court to tell us how to interpret the law. A response on this will ultimately determine a way forward.”
