/ 1 December 2000

MTN ‘had right to charge VAT’

The South African Revenue Service (Sars) this week confirmed that cellphone giant MTN erred by not seeking customer consent to being charged VAT on their cell-phone insurance premiums. The revenue services, nevertheless, battled to explain whether MTN slipped up by charging its customers VAT on their insurance premiums.

The confusion followed a Mail & Guardian article last week which said that the company had acted incorrectly in charging its customers VAT on premiums for cellular phone insurance between December 1995 and April 1999. The article said MTN had effectively ignored a ruling by Sars that it should seek permission from its customers before charging them VAT.

After MTN vigorously denied any untoward behaviour, Sars conceded that the issue was extremely complicated, but said MTN had been correct in charging VAT.The confusion hinges on whether foreign insurance providers, such as Lloyds of London, are responsible for collecting VAT on such premiums. Lloyds was MTN’s insurance underwriter during the period in question.

Sars has confirmed that its ruling 273 of 1991 stands. The ruling says: “The premiums paid in respect of [Lloyds] policies are therefore not subject to VAT.”

But this week it said there was “nothing irregular about [MTN] charging VAT on Lloyds premiums”. Sars officials conceded this week in a meeting between themselves and representatives of MTN’s erstwhile insurance administrators, Trafalgar Underwriting Group (TUG), that the regulations are potentially highly confusing. TUG is currently embroiled in litigation with MTN.

In last week’s article, the M&G also alleged that MTN had passed on to its customers faulty cellphones “out of box failures” through its insurance administrators TUG, but without the latter’s knowledge. Further, the cellular service provider failed to remedy problems arising from its failure to charge customers who had requested insurance on their phones.

Sars officials this week acknowledged that if MTN acted correctly in charging its customers VAT on insurance premiums, the implications could cause confusion for Lloyds brokerages. The ruling might necessitate the recovery of back-payments of VAT going back up to five years.

MTN has yet to answer M&G questions posed to it a week ago in respect of its hand-ling of out-of-box failures or billing problems.