Page 399 - Juta's Indirect Tax

IN 41 (3) VaLue-added tax act: InterPretatIOn nOtes IN 41 (3)
3.3.3 Entertainment
(a) General
The main activity of a casino falls within the ambit of ‘entertainment’ as de ned in section 1(1). This is due to the fact that it supplies entertainment in the form of gambling services in the ordinary course of an entertainment enterprise and such entertainment is provided for a charge that covers all direct and indirect costs of the entertainment provided. The casino is, therefore, entitled to deduct input tax on all goods or services acquired for the purposes of supplying the gambling service which includes the acquisition of slot machines, tables for card games such as blackjack and poker, roulette wheels, rental of the oor space, maintenance of the building and so forth. This deduction is subject to the requirements of sections 16, 17 and 20 being met.
(b) Prizes
The casino will be entitled to a deduction under section 16(3)(d) on the acquisition of entertainment that is awarded as a prize as a result of a bet being placed and such placing of the bet is a supply under section 8(13). In these instances, however, the deduction will be limited to the VAT incurred on the initial acquisition of such entertainment. In addition, this deduction can only be made in the tax period in which such entertainment is awarded as a prize. In order for a vendor to make a deduction on the acquisition of such entertainment, there must be a direct link to a supply that originated under section 8(13). The deduction in this circumstance must be substantiated by a tax invoice.
Example 3 – VAT implications of a prize awarded
Facts:
Joe Soap’s Casino makes only taxable supplies and is a registered vendor for VAT purposes. Its activities include the supply of betting transactions, accommodation, meals and beverages. On 23 January 2014, a client of Joe Soap’s Casino won the jackpot and, in addition, was awarded free accommodation for a weekend at a hotel of Lucky’s choice. The client elected to spend this free weekend at the Leisure Hotel, a hotel that is not owned by Joe Soap’s Casino. Joe Soap’s Casino incurred the cost of such accommodation and received a tax invoice from the Leisure Hotel.
Result:
By participating in the jackpot, the client had to place a bet. Joe Soap’s Casino is deemed to have made a supply under section 8(13) and is entitled to deduct an amount, under section 16(3)(d), for the accommodation acquired from Leisure Hotel as the prize is directly linked to the supply contemplated in section 8(13) by Joe Soap’s Casino.
It is common practice for casinos to hold promotional competitions where there is no entry fee payable to participate in such competitions. At the time of issue of this Note, a draft Interpretation Note dealing with the provisions of section 8(13) has been published. Upon nalisation of the said draft Note, this Note will be updated accordingly. If a prize, being entertainment, is awarded and there is no direct link to a supply contemplated in section 8(13), the normal rules relating to entertainment must be followed in order to determine the deductibility of input tax on such acquisitions.
(c) In-house entertainment
Casinos operating its own hotels, restaurants, bars or other food and beverage outlets on the premises (that is, all activities are registered under one VAT registration number) are entitled to input tax on goods or services acquired for the purpose of use, consumption or supply in the course of making a taxable supply of such accommodation, food and beverages. This is conditional on the restaurant, bar or other food and beverage outlet on the premises charging a speci c consideration for such supply and the consideration charged covering all direct and indirect costs or is equal to the open market value of the supply. The exception to this rule is where the casino makes a supply for no consideration under a bona de promotion. Importantly, the supply of the promotional entertainment of goods or services must be to clients or customers of the casino and the goods or services must in all respects be similar to the entertainment continually or regularly supplied to clients and customers of the casino for a consideration.
In this instance, the casino supplying accommodation, food or beverages to its clients or customers, free of charge, will be entitled to deduct input tax on the acquisition of such accommodation, food or beverages provided to punters (being clients or customers of the casino) free of charge, as it normally supplies accommodation, food or beverages for a consideration. Such entertainment is viewed as being provided as a bona de promotion by the casino and the goods or services are in all respects similar to the entertainment continually or regularly supplied to clients and customers of the casino for a consideration.
In addition, a casino that awards a prize, being entertainment, and there is no direct link to a supply contemplated in section 8(13), will be entitled to deduct input tax, under section 16(3)(a) read with section 17(2)(a), on such acquisitions as such entertainment is provided as a bona de promotion by the casino. This deduction is subject to the requirements of sections 16, 17 and 20 being met.
Example 4 – VAT implications of a prize due to promotional event by a casino
Facts:
Lady Luck Casino makes only taxable supplies and is a registered vendor for VAT purposes. Its activities include the supply of betting transactions, accommodation, meals and beverages for a consideration. Betright, a client of Lady Luck Casino was the 1 000th patron to enter the casino and was awarded a free meal for two at the Lady Luck Casino’s restaurant.
Result:
Lady Luck Casino is entitled to deduct input tax on the free meal supplied to Betright as the free meal provided is a bona de promotion as contemplated in section 17(2)(a).
Juta’s IndIrect tax 2016 391