VAT and e-Commerce
30 April 2014
Posted by: Author: Graeme Palmer
Author: Graeme Palmer (Garlicke &
Advances in technology have seen a significant increase in
e-commerce transactions where goods and services are supplied to South African
consumers through the medium of the internet. The Value Added Tax Act, 1991 (‘VAT Act’) requires VAT to be charged on
these transactions at the standard rate of 14%. A
South African supplier of e-commerce services would therefore register as a VAT
vendor, submit returns, and pay over the tax collected to SARS.
What is the impact?
Local and foreign suppliers of e-commerce services have not been
competing with each other in the South African market on a level playing field.
Local suppliers were previously obliged to include VAT on their sales while
their foreign counterparts were not, allowing them to sell to South African
consumers at lower prices. Prior to the new legal requirements, the onus was
placed on the consumer to pay the VAT on imported e-commerce goods and services
from abroad. But enforcing compliance with this system was impossible.
The VAT Act was thus amended to compel suppliers of
‘electronic services’ to South African residents where payment for such
services originates from a South African bank to register as VAT vendors. On 28
March 2014 the Minister of Finance published the final Regulations to give
effect to these amendments. These Regulations will be implemented on 1 June this
year to give foreign-based suppliers of ‘electronic services’ time to get their
systems ready and register with SARS.
What is electronic services?
According to the Regulations ‘electronic services’ include
the supply of:
and games of chance, including electronic betting or wagering;
music, audio visual content, still images;
services, such as magazines, newspapers, journals, social networking services,
websites, and blogs;
services, such as internet-based courses or education programmes. But excluded are educational services where
the service provider is registered with an educational authority in the
The new Regulations are not without problems. It is not
clear how SARS will enforce the Regulations against foreign suppliers of ‘electronic
services’ who do not comply. Further, foreign
suppliers will be obliged to register for VAT at the end of the month where the
total value of taxable supplies made exceeds R50 000. This is a low
registration threshold which will draw many smaller foreign suppliers into the
net, many of whom will not be aware of the changes to South African legislation.