Beware of advertising price without VAT - expert

Cape Town - An efficient advertising campaign can often be the difference between a successful and an unsuccessful business venture.

When advertising the price of a product, however, businesses must be mindful of the provisions of the Value-Added Tax Act, according to Louis Botha, Cliffe Dekker Hofmeyr.

This issue recently came up in a ruling by the Directorate of the Advertising Standards Authority of SA (ASA Directorate) in the matter of Security Outfitters Safety Gearan and L. Munian.

The complainant (Munian), lodged a consumer complaint against a print advertisement for safety gear clothing sold by the respondent (Over-All Gear). The respondent’s advertisement featured different ranges of security uniforms, reflective jackets and safety boots. At the bottom of the advertisement it stated, among other things, “Prices valid until stocks last. Prices excluding VAT".

The complainant objected to the fact that the advertised prices excluded VAT. The respondent submitted, among other things, that it was a registered VAT vendor, is charged VAT in all processes of manufacture or purchasing of stock and is, therefore, entitled to charge VAT on its prices.

For these reasons, the respondent’s advertising indicated that its prices exclude VAT, to avoid confusion.

In its ruling, the ASA Directorate referred to a previous clarification by the SA Revenue Service (Sars) that the practice of only reflecting a price excluding VAT on an advertisement does not comply with the requirements of section 65 of the act and that it is not permissible to quote the price excluding VAT and have a statement that VAT has been excluded.

In light of the above authority, the ASA Directorate found that the mere inclusion of a statement to the effect that “prices exclude VAT” is not compliant with the provisions of the VAT Act, which in turn means that such advertising contravenes the Code.

The ASA Directorate, therefore, upheld the complaint and ordered that the advertising must be withdrawn with immediate effect.

Botha pointed out that in its ruling, the ASA Directorate noted that the practice of the respondent in this case appears to be relatively widespread in its industry, but that it cannot impose the ruling on other advertisers as it can only act on complaints against one advertiser at a time.

"Taxpayers who are making use of this practice should, therefore, take heed of this ruling and amend their advertising accordingly, so as to prevent themselves from being hauled before the ASA at a later stage," cautioned Botha.

"Although section 58 of the VAT Act does not list the abovementioned practice as an offence for which a taxpayer could pay a fine or face imprisonment, a taxpayer could suffer reputational damage if it is found to have contravened this provision of the VAT Act and the issue becomes public."