Big VAT changes for airtime purchases in South Africa on the cards

The National Treasury is proposing significant changes to the value-added tax (VAT) treatment of airtime vouchers supplied in South Africa to clarify existing laws. 

In particular, the National Treasury is looking to clarify that the supply of airtime by foreign suppliers is out of scope in South Africa. 

As a result, only the distribution services provided by South African distributors will be subject to VAT at the standard rate, not the foreign supplier. 

This review is included in the publication of the 2025 Draft Tax Bills and Draft Regulations for public comment by the National Treasury and SARS. 

These draft tax bills and draft regulations contain tax proposals made in the 2025 Budget on 12 March 2025 and updated on 21 May 2025.

Much of the focus of the draft changes is on closing loopholes in existing legislation and regulations, which either cause confusion and are resolved through court cases or can be used by individuals and companies to minimise their tax burden. 

One of the more obscure additions to draft legislation is the review of the VAT treatment of airtime vouchers supplied in South Africa by foreign providers for exclusive use in the country. 

The National Treasury aims to clarify, in law, that the supply of a telecommunications service by a foreign supplier is out of scope, resulting in only the distribution services by the South African distributors being subject to VAT. 

This is based on the argument that the airtime voucher is supplied outside South Africa and thus not subject to local taxes and legislation. 

Instead, only the South African distributor’s services are subject to VAT at the standard rate. This means that VAT is only levied when the local distributor resells or distributes the service to local customers. 

This proposal also seeks to avoid the potential double taxation on foreign telecommunications suppliers, with both SARS and foreign tax collectors having a dip. 

It will also ease the administrative burden on SARS, which previously would have had to enforce compliance on foreign telecoms companies. 

Taxman double-dipping

This clarification comes a few years after MTN applied for a declaratory order from the courts regarding the VAT treatment of airtime vouchers. 

Although this applied only to vouchers produced and sold within South Africa, clarification was sought to prevent SARS from potentially double-dipping on airtime vouchers. 

Bowmans’ Aneria Bouwer explained that the correct VAT treatment of vouchers for digital services has been a grey area for years, with little clarity about when the tax is levied. 

The application for a declaratory order related to the difference between the VAT treatment of monetary vouchers and product-specific vouchers. 

The difference between these two is as follows –

• A monetary voucher provides the purchaser with the right to receive goods or services to the extent of the value stated on such voucher, for example, a gift card. The sale of the monetary voucher is disregarded for VAT purposes, and VAT will become payable when the monetary voucher is used to acquire goods or services.
• A product-specific voucher entitles the holder, on the surrender thereof, to receive the goods or services specified on such voucher. VAT becomes payable when the voucher is sold, not only when the goods or services are supplied.

MTN’s application for a declaratory order related specifically to the multi-purpose voucher, which it argued does not trigger a VAT liability when sold. 

Instead, VAT would only become payable once the voucher is activated and used to acquire different goods and services.

The court, however, believed that the multi-purpose voucher was specifically an ‘airtime’ voucher and was not akin to a gift voucher that could be used to pay for goods or services. 

Although the multi-purpose voucher could be used to make or receive calls, send messages or use the internet or data, the court believed that this did not detract from the fact that it purchased ‘airtime’. 

Accordingly, the court held that the sale of the multi-purpose vouchers was subject to standard VAT. MTN is thus obliged to charge VAT on the sale of these vouchers in the period during which the voucher was sold.

The National Treasury’s attempt to clarify the treatment of airtime vouchers provided by foreign companies is one step on the way to shedding light on the grey area.