Abstract
The Medium Term Budget Policy Statement presented by the South African Minister of Finance in late 2013, highlighted that government expenditure substantially exceeded revenues collected. In investigating the possible broadening of the South African tax base as well as improving revenue administration, there is evidence of a gap in the taxation of customer loyalty programmes within many industries. The problem is that customer loyalty award credits are currently not being taxed by the revenue authority in South Africa. This study uses a multiple instrumental case study design to identify the tax leakages resulting from inadequate revenue administration within the South African retail industry’s use of customer loyalty programmes. The study has found that the loss to the fiscus in the non-taxing of customer loyalty award credits is substantial.
Highlights
Customer loyalty programmes (CLP’s) are designed by companies to give customers rewards for remaining loyal to that company or supporting the company that provides the reward rather than a company that does not provide any rewards
This study identifies the tax leakages resulting from inadequate revenue administration within the South African retail industry’s use of CLP’s
The authors have identified that the taxation of CLP award credits is one area where the broadening of the tax base may be made with relative ease. as whilst the receipt of CLP award credits are not currently included in the income of taxpayers, the costs associated with providing these credits are deducted in determining the taxable income for the providers of the award credits (Pidduck and Odendaal, 2013)
Summary
Customer loyalty programmes (CLP’s) are designed by companies to give customers rewards for remaining loyal to that company or supporting the company that provides the reward rather than a company that does not provide any rewards. CLP’s are beneficial to consumers, and to businesses and the economy as a whole for many reasons. Consumers who belong to CLP’s gain benefits through discounts, cash-backs or free/discounted goods or services. Companies reap benefits through reduced marketing cost, increased spending by their customers and brand loyalty, as well as gaining non-financial benefits by obtaining an understanding of their customers’ spending habits in order to increase service delivery (Chinomona and Sandada, 2013). This further allows companies to make adjustments to their product and service offerings to suit their customers’ needs. CLP’s have a role to play in the economy, due to the fact that spending of award credits by customers increases purchasing power and contributes to the gross domestic product of the country as a whole (Bizcommunity, 2012)
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