Editorial

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v15_n2_a1
• Author: Michael Rudnicki Rudnicki
• Pages: v-vii
• Date: 01 July 2024
• Published date: 01 July 2024
• Published By: Siber Ink

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Editorial

MICHAEL RUDNICKI

The f‌i rst article considers the recent seminal Constitutional Court decision

in Capitec Bank Limited v Commissioner for the South Africa Revenue Service.

The author respectfully takes the view that the matter was wrongly decided.

The judgment did, however, provide clarity with regard to a number

of value-added tax provisions, most notably the treatment of a supply for

no consideration and the application of apportionment, albeit outside the

ambit of the Value-Added Tax Act, 1991 (‘the VAT Act’).

Capitec sought to deduct amounts paid to customers as indemnity

payments in terms of section16(3)(c) of the VAT Act. Capitec applied the

claim proceeds, that arose upon the death or retrenchment of the borrower,

to the credit of the borrower’s bank account with Capitec. The provisions

of the section only apply if the ‘contract of insurance’ under which the

payments are made is a taxable supply.

As no consideration was charged for the loan cover, SARS argued that

Capitec was not carrying on an enterprise in relation to its loan cover. SARS

argued further that the loan cover was connected to the provision of loans,

i e an exempt supply, and therefore the provision of the loan cover simi-

larly constituted an exempt supply.

In the Constitutional Court, the court accepted that a supply for no

consideration could constitute an ‘enterprise’ supply, but that the loan

cover related to both exempt (loans) and taxable (fees) supplies and there-

fore the deduction in terms of section 16(3)(c) had to be apportioned.

The author makes the point that none of the counsel of the courts a

quo considered whether the loan cover arrangement in fact constituted a

‘contract of insurance’. The author is strongly of the view that the loan

cover arrangement does not constitutes a ‘contract of insurance’. The

reason being that two essential elements of a contract of insurance are

absent, namely (i) the assumption of risk of loss that may be incurred

by the insured (the policy holder) and (ii) the receipt of consideration

(premiums) for providing the insurance. The loan cover arrangement is

in the nature of a security arrangement whereby the risk of loss being

incurred by Capitec (not the borrowers) is avoided as the bank recovers

the amount of outstanding debts under its credit insurance policy with

the insurer. Part2 of the article will deal with some of the contentious VAT

issues dealt with in the case.

* * *

The second article considers the GAAR provisions of the Income Tax Act,

1962 (‘the Act’), Part IIA in particular, and more specif‌i cally, why circular