Filling the fiscal basket: Quantifying tax revenues from customer loyalty programmes

Abstract

The South African government is experiencing a significant shortfall in tax revenue, and recent research has identified customer loyalty programmes (CLPs) as a potential revenue stream. Despite the popularity of these programmes, which are used by 73% of economically active South Africans, no tax is currently imposed on the rewards received by customers, resulting in the loss of much-needed tax revenue. This paper quantifies the tax revenue that could have been generated by South Africa’s three most-used CLPs over a five-year period (2018–2022) to determine if a tax on CLP rewards is a viable revenue stream for the fiscus. The longitudinal instrumental case study employed demonstrates that the fiscus could have conservatively collected R1 140 753 042 in total tax revenue from the three CLPs if a tax had been imposed on CLP rewards, as proposed in this paper. This paper highlights the significant revenue potential of taxing CLP rewards, and it provides valuable insights for policymakers who seek to address the country’s revenue challenges. The findings reveal the magnitude of potential contributions to tax revenue in the form of CLPs. Given the impetus behind CLPs, their exponential growth rate and their increasing importance as a marketing strategy, this paper proposes a re-evaluation by policymakers of the taxation of CLP rewards.

Keywords:

• customer loyalty programmes
• revenue recognition
• withholding tax
• loyalty rewards

Acknowledgements

Some of the sections of this work are based on the mini dissertations of the first two authors which were submitted in accordance with the requirements for the degree Master of Commerce in Taxation at the University of Pretoria in 2022.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Dis-Chem Benefit does not use a point system: 1.5% of purchases in Rand are given as Benefits in Rand.