When a Cashback Is a Discount and The VAT Consequences You Need to Know
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SARSTC VAT 32666 (VAT) [2026] ZATC JHB (18 March 2026)
What was this case about?
A bank ("Taxpayer Bank") ran a "cashback" scheme where clients who met certain conditions, like having a personal loan with the bank and keeping their accounts in good standing, would get their monthly banking fee refunded back into their account. The bank treated these refunds as a reduction of the original fee charged, and claimed back the VAT it had already paid on those fees (R5.5 million worth). SARS said no and disallowed the deduction.
The Arguments
SARS took the position that there were really two separate transactions happening: first, the bank charges a fee for banking services; second, the client "performs a service" for the bank by meeting the qualifying criteria (like using the bank's credit products), and the cashback is essentially the bank paying the client for that behaviour. On this view, the cashback wasn't a reduction of the original fee at all, it was payment for something else, and so no VAT adjustment was due.
The bank said it was straightforward: the cashback scheme was simply a way of reducing the monthly fee by agreement. Clients were told upfront that if they met certain criteria, they'd get their fee back. The fee was charged, VAT was paid on it, and then the fee was effectively reversed. Under section 21(1)(c) of the VAT Act, when a previously agreed price is reduced by agreement, the supplier is entitled to adjust the VAT accordingly.
What did the court decide?
The court sided with the bank and upheld the appeal. The judge found that section 21(1)(c) of the VAT Act simply requires proof that a previously agreed consideration was reduced by agreement, it doesn't matter why the reduction happened or what motivated it. The bank clearly advertised the scheme as a fee reduction, clients understood it that way, and the evidence supported it. SARS's argument that the client was somehow "supplying a service" to the bank by meeting the criteria was dismissed as an overly complicated and conflated reading of the law.
What about costs?
The bank asked the court to order SARS to pay its legal costs, arguing that SARS had acted unreasonably — particularly because SARS initially misunderstood how the cashback scheme worked, and then changed its argument during the trial to a completely new one. The court acknowledged this was not ideal, but declined to award costs. The judge noted that the bar for finding SARS's conduct "unreasonable" under the Tax Administration Act is a high one, and it wasn't met here.
The outcome: SARS was ordered to allow the R5,551,275.52 VAT deduction. Each party bore its own legal costs.
The lessons we can learn from the case
Cashback and loyalty schemes can qualify as VAT adjustments.
If your client runs a rewards or cashback programme that reduces a fee they previously charged, that may well be a credit note event under section 21(1)(c) of the VAT Act. Don't assume these are simply marketing costs with no VAT consequence. You can use this case as reference point to argue your viewpoint.
The reason for the reduction doesn't matter.
The law is broad. Whether the fee is reduced as a discount, a loyalty reward, or for any other commercial reason, the VAT adjustment right still applies. Advise clients not to walk away from legitimate input tax claims just because the reduction has an unusual label.
Document the agreement properly.
The court placed significant weight on the fact that the reduction was communicated clearly to clients upfront, through the pricing guide, the app, the website, and call centres. If your client runs a similar scheme, make sure the terms are in writing and easy to trace. Weak documentation will weaken the claim.
SARS may raise new arguments during litigation.
In this case SARS changed its position between the audit and the court hearing. This highlights the importance of keeping thorough records throughout the audit process, not just at the point of objection.
The "two transactions" argument is a red flag.
When SARS tries to reframe a single commercial arrangement as two separate transactions to deny a deduction, that is worth challenging. Courts will look at the evidence as a whole, not in isolated pieces.
Don't give up on penalties too quickly.
The bank claimed alternative penalty relief in case it lost on the main issue. While that became unnecessary here, it is good practice to include alternative grounds in your objection and appeal notices, especially where SARS's position appears to rest on a factual misunderstanding.