The essence of the court’s finding in the Capitec case revolves around the determination that the provision of free loan cover by Capitec was not truly without cost. While the cover was offered without charge to clients, it was an integral part of Capitec’s business strategy to attract customers and enhance its competitive position. The court acknowledged that Capitec’s revenue model relied on earning exempt interest and taxable fees from lending activities, and the provision of free loan cover contributed to this revenue stream indirectly. Therefore, the court concluded that Capitec was entitled to deduct the VAT associated with the provision of free loan cover, albeit subject to an appropriate apportionment methodology. This finding reinforces the principles applicable to supplies made without direct monetary exchange and provides clarity on VAT implications in such transactions.
https://www.moneyweb.co.za/mymoney/moneyweb-tax/important-vat-principles-clarified-in-capitec-case