The VAT treatment of over-allowances in the motor retail industry has proved contentious for South African Revenue Services (“SARS”). VAT legislation dictates that notional VAT may be claimed on the lower of the open market value and the consideration paid. The industry, however, claims notional VAT on the actual consideration paid for a used vehicle on the basis that a higher output VAT will be declared on the consequent sale of the new vehicle. This is because the over-allowance is offset against the lower discount granted. SARS allows this practice on account of SARS’ own issuance of a binding general ruling, provided certain criteria are met. This ruling is contained in the VAT Guide to Motor Dealers. This study performs an analysis of the current practice by South African motor retailers pertaining to over-allowances. The aim of the study is to determine the impact on the industry of the issuance of the Guide, both practically and from the perspective of compliance, focussing on VAT legislation and Competition Commission legislation. The study discusses the requirements contained in the Guide in the light of the Competitions Act and the practical benefits, and concludes that the industry is satisfied with the issuance of the Guide, despite its silence on the interpretation of certain key criteria. The industry has chosen to assume that, as SARS has acted reasonably in the issuance of the Guide, it would not expect the industry to deviate from any other legislation, including the Competitions Act. If SARS is not satisfied with this interpretation, the Guide will have to be amended to include definitions of terms such as “permissible discount”. AFRIKAANS : Die hantering van die toelating van oormatige BTW in die motorvoertuig-kleinhandelsindustrie is, insover dit die Suid-Afrikaanse Inkomstediens (“SAID”) betref, omstrede. BTW-wetgewing bepaal dat geagte BTW gehef mag word op die laagste van ope markwaarde en die werklike bedrag betaal. In die motorvoertuigindustrie word BTW egter altyd gehef op die werklike bedrag betaal vir ‘n gebruikte voertuig met die veronderstelling dat hoër uitset BTW verklaar gaan word met die verkoop van ‘n nuwe voertuig wat die inruiltransaksie tot gevolg gaan hê. Daar word geredeneer dat die oortoelating van BTW uitgekanselleer gaan word deur ‘n laer afslag op die nuwe verkope. As gevolg van bindende bepalings in die BTW Handleiding vir Motorhandelaars, wat uitgereik is deur die SAID en die nakoming van sekere voorwaardes deur die motorhandelaars, laat die SAID hierdie praktyk toe. In hierdie mini-verhandeling word die vereistes wat in die Handleiding vervat is teen die agtergrond van die Wet op Mededinging en die praktiese voordele daarvan bespreek. Die gevolgtrekking is dat die motorvoertuigindustrie tevrede is met die uitreiking van die Handleiding vir motorhandelaars ongeag die feit dat sekere sleutel aspekte nie in die Handleiding voldoende toegelig word nie. Die motorindustrie het die aanname gemaak dat SAID redelikerwys opgetree het deur die Handleiding uit te reik en sal daarom nie verwag dat die industrie van enige ander wetgewing sal afwyk nie, insluitende die Wet op Mededinging. As die SAID nie tevrede is met hierdie interpretasie nie sal dit beteken dat die Handleiding aangepas sal moet word om ander relevante terminologieë soos “toelaatbare afslag” beter te omskryf en te verduidelik. Copyright 2011, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. Please cite as follows: Coventry, MA 2011, A critical analysis of the VAT implications of over-allowances in the South African motor retail industry, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03092012-112915 / > F12/4/77/gm / Dissertation (MCom)--University of Pretoria, 2012. / Taxation / unrestricted