The Battle of VAT Apportion Method: African Bank vs SARS - Who Gets to Decide?
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In a recent decision that strengthens the rights of VAT vendors, the Supreme Court of Appeal (SCA) has ruled in favour of African Bank against the South African Revenue Service (SARS), clarifying when a vendor can challenge SARS's decisions on how to calculate VAT input tax.
The Facts of the Case
African Bank is a registered VAT vendor and a financial services provider. It makes both exempt supplies (like providing credit) and taxable supplies (such as charging certain fees). Under section 17(1) of the VAT Act, when a vendor uses goods and services for both taxable and exempt activities, it can only claim part of the VAT back. The portion must be calculated using an apportionment method approved by SARS.
In 2020, African Bank requested SARS to approve a specific, transaction-based method for calculating this apportionment. But SARS refused and instead imposed a different method, a turnover-based approach. African Bank objected, arguing that SARS effectively rejected their requested method. When SARS dismissed the objection, African Bank took the matter to the Tax Court.
Before the Tax Court could hear the case, SARS challenged the court’s jurisdiction. SARS claimed that it hadn’t actually "refused" African Bank’s method but had simply issued a different one, which, in their view, didn’t count as a refusal that could be appealed.
The Legal Issue
The heart of the dispute was whether SARS’s decision to impose an unrequested method — instead of approving the method African Bank applied for — counted as a “refusal” under section 32(1)(a)(iv) of the VAT Act.
SARS argued: “We didn’t refuse to approve a method. We just approved a different one. That’s not appealable.”
African Bank argued: “You refused the method we asked for and imposed one we didn’t want. That’s clearly a refusal and should be subject to objection and appeal.”
The Supreme Court Judgment
The Supreme Court of Appeal agreed with African Bank and dismissed SARS’s appeal.
The Court held:
SARS’s decision was indeed a refusal. Even though SARS offered an alternative method, the fact that it did not approve African Bank’s requested method qualified as a refusal under the law.
This kind of refusal can be appealed. Section 32(1)(a)(iv) is intended to give vendors the right to challenge SARS decisions when they are unhappy — especially where SARS forces a vendor to use a method it didn’t request.
A narrow interpretation, like the one SARS proposed, would undermine the law. It would deny vendors fair recourse and push them into lengthy, expensive judicial reviews instead of allowing quicker, more accessible tax court appeals.
The Tax Court had proper jurisdiction, and its dismissal of SARS’s technical objection was correct.
The Court also criticised SARS’s interpretation for encouraging unnecessary litigation and wasting judicial resources. The appeal was dismissed with costs, including the cost of two legal counsel.
Why It Matters
This case is a win for tax transparency and procedural fairness. It confirms that when SARS substitutes a vendor’s requested method with one of its own, that decision can be challenged. Vendors now have clearer grounds to object and appeal such decisions, rather than being forced to accept methods that may not suit their business models.
