SA stands to gain R980m in tax thanks to VAT on e-commerce products
06 February 2014
Posted by: Author: Samuel Mungadze
Author: Samuel Mungadze (BDlive)
A move to levy tax on all e-commerce products bought from companies that do not have a presence in South Africa is likely to net an additional R980m in tax revenue a year from value added tax (VAT), experts have said.
The government plans to levy VAT on all foreign companies that sell digital music, e-books and similar services in the local market.
A notice to this effect was issued by the Treasury last week. Finance Minister Pravin Gordhan had also mentioned the issue in his 2013-14 budget speech.
Anne Bardopoulos, a senior tax expert at Deloitte, said the law would provide a prudent way for authorities to tax the digital economy, which had largely been growing without paying taxes locally.
"It was impossible for the South African Revenue Service to impose tax (on these transactions)," she said. "They were losing out. Now they have shifted the obligation to the foreigners who do business here."
The Treasury said the move was in line with international and local efforts to bring cross-border e-commerce (specifically the digital economy) into the VAT regime.
"The current application of VAT on imports does not lend itself to the effective enforcement on imported services or e-commerce where no border posts (or parcel delivery agents, such as the Post Office) can perform the function as collecting agents, as is the case with physical goods," it said.
The Treasury also said that because such foreign companies were not VAT registered, South African consumers bought imported digital products without paying VAT. That put local suppliers of digital services at a competitive disadvantage and resulted in a loss of revenue for the fiscus.
It said the VAT legislation was amended to bring the digital economy more comprehensively into the tax net and provided for the minister to issue regulations prescribing imported services that would be covered by the new definition of electronic services in the VAT Act.
Another tax expert, Emil Brincker, the national practice head for tax at Cliffe Dekker Hofmeyr, said the industry should not be alarmed by the Treasury’s announcement.
"Its not something new, it was announced last year," he said. "It’s a part of trend worldwide that it has to be introduced. It’s a question of getting some form of tax on this trade — it will be viable in that sense."
Services that would attract VAT include the supply of e-books, digital music and films, software, images, games and games of chance, information system services, internet-based auction services, maintenance services and educational services, among others.
The biggest digital retailers of music, books and films in South Africa are US-based Amazon and Apple’s iTunes service.
However, while Amazon has some research and development and a call centre in South Africa, Apple has no physical presence as its computers are sold through a third party.
Electronic regulatory affairs lawyer Dominic Cull, however, told Business Day that it would be interesting to see how the Treasury planned to force a company with no physical presence to pay VAT.
"According to current VAT regulations, one needs to have a physical address and a local bank account with at least R50,000 worth of invoiced payments in it," he said.
This article first appeared on bdlive.co.za.