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Are you entitled to claim input tax if you offer cash prizes?

by , 19 February 2014
Are you in the business of offering cash prizes? If so, continue reading to find out whether or not you're allowed to claim input tax when you pay them out.

The following five activities are classified as betting under Vat law:

  1. Horse racing
  2. Lotteries
  3. Gambling
  4. Crosswords
  5. Scratch cards.

According to the Practical Vat Loose Leaf Service, where a person bets an amount on the outcome of a race or on any other event or occurrence, the person with whom the bet is placed is deemed to supply a service to the person placing the bet (Section 8 (13)). So output tax must be declared on bets received.

But what does Vat law say about input tax and betting?

The Vat Act allows you to claim the following deductions:

  • An amount equal to the tax fraction of any amount paid as a prize or winnings to the recipients (winner) (Section 16 (3)(d));
  • An amount equal to the tax fraction of any amount of tax on betting levied and paid for the benefit of an Provincial Revenue Fund (Section 16 (3)(e)); and
  • Vat paid on expenses relating to a competition.

But if you pay cash prizes, things are a little different.

You can't claim input tax on cash prizes

Let's say Newspaper Q prints a weekly crossword puzzle. The winner receives R1 000 in cash. The crossword puzzle is open to anyone buying a newspaper.

As no entry fee is required, Newspaper Q isn't entitled to claim Vat on the R1 000 winnings it pays.

Important: The Practical Vat Loose Leaf Service explains that the most important rule here is where no entry fees or other fees are charged, the competition isn't covered by the above Section 8(13) which makes it subject to Vat. Consequently, no corresponding input tax can be claimed on winnings paid out.

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