Enter the Advertising Regulatory Board (ARB). The ARB administers the widely-accredited Code of Advertising Practice (Code) which regulates the content of South African advertising. Advertisers are required to comply with the guidelines as set out in the Code of Advertising Practice when advertising goods or services to consumers.
The ARB recently issued two separate decisions in respect of complaints lodged by consumers regarding advertisements which misled such consumers as to the affordability of the supplies advertised. In the first complaint lodged against a travel website, the complainant lodged a complaint on the basis that a holiday adventure package advertised on the website only listed the VAT exclusive price. The website operator submitted that it had addressed the issue with the supplier who had provided the content of the advertisement, and that it had since corrected the advertising in question to reflect the VAT inclusive price. In the second complaint lodged against a supplier of office furniture, the complaint was in respect of the advertising of office chairs reflecting only the VAT exclusive price. The supplier agreed to correct its advertising to reflect the VAT inclusive price. In making its decisions requiring the advertisers to address the complaints, the ARB, in both instances, had regard to the Code which states that ‘when an indication of cost is given in an advertisement, regard should be had to s65 of the VAT Act’.
Section 65 of the VAT Act requires that all prices advertised or quoted in respect of a taxable supply of goods or services must include VAT, or alternatively, that the advertisement or quotation must reflect the VAT cost, the VAT exclusive price and the VAT inclusive price. Section 65 goes on to require that where an advertisement reflects the VAT inclusive and VAT exclusive price, both prices must be displayed with equal prominence and impact.
It follows that in terms of s65 of the VAT Act, all price tags, catalogues, advertisements and quotations, must, as a matter of course, include the VAT payable in respect of the supply. We note however, that with regard to retailers, s65 provides that the price tags displayed on goods in-store do not need to contain a ‘VAT-inclusive’ statement, provided however, that this fact is prominently displayed at all entrances to the premises in which the business is carried on, and at all pay points where payments are made. Section 65 also gives the Commissioner for SARS the authority to approve any other method of displaying prices where he deems necessary. In this regard, the Commissioner has directed, in SARS Binding General Ruling 28 (Issue 2), that an electronic services supplier may advertise or quote the price of its electronic services exclusive of VAT, if it has a statement on its website indicating that VAT will be levied on supplies of electronic services to an electronic services recipient as contemplated in the VAT Act.
Although the ARB is not empowered to impose any punitive measures in respect of the contravention of the Code, it is important to note that in terms of s58(e) of the VAT Act, it is a criminal offence not to reflect the VAT inclusive amount when advertising or quoting a price in respect of any taxable supply made by a vendor as required in terms of s65 of the VAT Act. SARS previously confirmed that a publisher cannot be held liable for incorrect advertisements or quotations contained in its advertisers’ advertisements (SARS Ruling No 49). In that instance, it would therefore be the advertiser, and not the publisher, who would be in contravention of s65 of the VAT Act.
Although a seemingly simple requirement of the VAT Act, many vendors nevertheless find themselves in contravention of the requirements of s65 of the VAT Act, whether intentionally or not, as evidenced by these recent ARB decisions. Even though suppliers may be tempted to a adopt a marketing strategy aimed at luring potential customers by means of displaying the lower VAT exclusive price; vendors are reminded, as discussed above, that it is a criminal offence not to reflect the VAT inclusive amount when advertising or quoting prices in respect of its supplies. Suppliers should accordingly carefully review their advertisements and quotations to ensure compliance with the VAT Act.