Abstract
The popularity of client loyalty programmes has increased drastically over the past few years, with more than 100 suppliers in South Africa currently making use of them. Despite the fact that client loyalty programmes have been prevalent in South Africa since the 1980s, the South African Revenue Service has issued no specific guidance on the income tax treatment of client loyalty programme transactions. The main objective of the research was to determine whether South African client loyalty programme suppliers treat client loyalty programme transactions correctly for income tax purposes. In order to meet this objective, available local and international literature were analysed to determine the proposed income tax treatment of a client loyalty programme transaction expenditure incurred by supplier for purposes of the client loyalty programme. The proposed correct income tax treatment was compared with a survey circulated to a population of client loyalty programme suppliers in South Africa. The comparison indicated that in practice the Income Tax Act No. 58 of 1962 is treated differently from the proposed treatment. This incorrect tax treatment could result in possible financial loss to the client loyalty programme supplier as taxpayer.
Highlights
A client loyalty programme can be defined as a programme where consumers accumulate free points or miles based on the purchases of goods or services from a supplier (Brink & Viviers, 2012:238)
A client loyalty programme where points or miles accumulate on a membership card and the consumer has unlimited access to the points or miles, the points or miles are subject to an expiry date and the consumer has an option to exchange the points or miles awarded with the client loyalty programme or with a third party
The responses provided in the questionnaires indicated how client loyalty programme suppliers account for a client loyalty programme transaction for income tax purposes
Summary
A client loyalty programme can be defined as a programme where consumers accumulate free points or miles based on the purchases of goods or services from a supplier (Brink & Viviers, 2012:238). The popularity of client loyalty programmes has increased drastically (Travel wires, 2011) and more than 100 suppliers in South Africa are already making use of these programmes (Conradie, 2011). Despite the fact that client loyalty programmes have been prevalent in South Africa since the 1980s (Travel wires, 2011), the South African Revenue Service (SARS) has issued no specific guidance on the income tax treatment of client loyalty programme transactions. There is uncertainty about the correct income tax treatment of a client loyalty programme transaction in the hands of a South African supplier. This article is based on research done for an unpublished master’s dissertation (Brink, 2011: 1-156)
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