T (PVT) LTD v ZIMBABWE REVENUE AUTHORITY 2015 (1) ZLR 530 (H)

Flynote

Revenue and public finance — value added tax — service supplied in course of business for which supplier receives a commission — VAT payable on commission received — commission — distinction from discount

Headnote

The appellant was a travel agent. In carrying out its tasks, it assisted the passenger in the selection of a suitable airline that was compatible with his needs on cost, class and convenience. It booked the seat, received payment for the airfare and issued the ticket to the passenger. It also handled the complaints raised by the passenger against the chosen airline. It charged the passenger a fee for these services. This fee was liable for value added tax, which was paid to the respondent.

The appellant interfaced with the airline on two fronts. It actively dealt with the airline in troubleshooting passenger complaints. The main interaction was carried out indirectly through the central reservation system run by the International Air Transport Association (IATA). The appellant, like other travel agents, received payments from IATA in respect of bookings made through it. These payments were referred to by IATA as "commissions"; in respect of commissions for domestic flights, the appellant paid VAT on the commissions for those flights. In respect of other flights, the appellant argued that the payments were not commissions, but "discounts" and thus not liable to VAT. It explained that the practice used to be that airlines used to pay travel agents a nine per cent commission across the board on the tickets sold for the airlines. At that time, the commission constituted the sole source of income for the travel agent. The travel agent did not charge any service fee to the passenger. In time, the airlines unilaterally stopped paying commission to travel agents. In its place, they introduced discounts ranging between zero per cent and one per cent. The travel agents resorted to charging service fees to augment their income.

In argument, the submissions by counsel were confined to whether the amounts assessed for VAT by the respondent constituted discounts or commissions in the hands of the appellant. Counsel were agreed that a discount was distinct from a commission. The latter would attract VAT, while the former would not.

Held, that a discount represents a reduction in the normal price of goods or services provided by a supplier to a customer while a commission is a fee based on a per centage of the sale made that is mutually agreed upon or fixed by custom or law that accrues to an agent or a broker.

Held, further, that in terms of s 6(1)(a) as read with s 6(2)(a) of the Value Added Tax Act [Chapter 23:12], VAT is paid by a registered operator for the supply of goods or services made by him on or after 1 January 2004 in the course or in furtherance of his trade. In terms of s 10(2)(a)(ii) of the Act, the airfare paid by a passenger for a flight from Zimbabwe to a foreign destination was zero rated for VAT, while any payment by the airline to the appellant was subject to value added tax as it was neither exempted nor zero rated.

Held, further, that the positive acts of the appellant in purchasing the ticket on behalf of the passenger from the chosen airline through the central reservation system constituted "anything done" for the airline and thus constituted a "service", for which the appellant was paid a commission. The only conceivable reason why the appellant earned commission consistently from the airlines over the years in question was because it was an agent of those airlines. The commission was subject to VAT. It was paid in US dollars and the VAT would, in terms of s 38(4) of the Act, also have to be paid in US dollars.