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Overhaul VAT laws for digital economy, says PwC

15 May 2015   (0 Comments)
Posted by: Author: Thabiso Mochiko
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Author: Thabiso Mochiko (BDlive)

Governments need to upgrade value added tax (VAT) laws to keep up with the digital economy, according to consulting firm PwC.

SA’s existing tax law on digital related services, amended last year, imposes VAT on electronic services such as educational materials, games, e-books, audio visual content, and music. But local and global authorities are looking at expanding the scope to include services such as software applications and online advertising.

Thousands of software applications (apps) are bought by electronic users from online app stores whose providers are international companies. Google, Twitter, Facebook and other companies are generating revenues by allowing companies to advertise on their social media and search sites.

PwC said the playing field was not level as foreign entities were not subjected to the same tax regime as local companies.

"The pace at which the digital economy is growing will require action from SA’s tax authorities, as well as an overall global solution to level the playing fields so that South African companies are able to compete with big multinationals on a level playing field," Charles de Wet, head of indirect tax, PwC Africa, said on Tuesday.

He said many international suppliers of digital services remained outside the scope of South African VAT and further work needed to be done to ensure that foreign suppliers operating locally were taxed in line with local businesses.

Finance Minister Nhlanhla Nene announced in his budget speech in February that proposed changes would be made to the rules for the digital economy.

Kyle Mandy, head of national tax technical at PwC, said when the government amended existing laws it should broaden them to cater for the changing global digital sector.

Mr Mandy said the concern was not big corporates like Google but small enterprises and "fly-by-night" entities selling digital goods to consumers and businesses without paying any taxes. The big corporates are likely to comply with the country’s tax regime as they face reputational damage if not.

SA tax laws are not the only ones that have not kept up with the digital era. The Organisation for Economic Co-operation and Development is developing tax rules that will address tax challenges in the digital economy.

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