Digital tax looms

National treasury is moving ahead with plans to force foreign suppliers of intangible digital goods and services to register as value-added tax vendors in South Africa.

Finance minister Pravin Gordhan

Finance minister Pravin Gordhan

National treasury is moving ahead with plans to levy value-added tax on digital goods such as music downloads and digital books, with the controversial new rules set to come into effect on 1 April.

Government this week published electronic services regulations for public comment. This follows finance minister Pravin Gordhan’s announcement in the 2013 budget that all foreign businesses supplying e-books, music and other digital services in South Africa will be required to register as VAT vendors.

In a column published by TechCentral shortly after Gordhan announced national treasury’s plans to introduce the tax on digital services, Gerard Soverall, head of indirect tax at PwC in Gauteng, warned that it would likely affect the pockets of private individuals more than foreign suppliers.

However, Soverall said that the proposals were in line with international trends, such as regulations adopted by the European Union that require such suppliers to register for VAT in the country where consumers reside.

National treasury said this week that Gordhan’s announcement last year was “made against the backdrop of efforts, both internationally and locally, 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 net result is that the local consumers can buy imported digital products without paying VAT. This outcome not only places local suppliers of digital services at a competitive disadvantage compared to suppliers from abroad but also results in a loss of revenue for the fiscus.”

National treasury said the VAT legislation was changed to “bring the digital economy more comprehensively into the VAT net and provides for the minister to issue regulations prescribing imported services that will be covered by the new electronic services definition in the VAT Act”.

“These imported services will include the supply of e-books, e-music, e-films, software, images, games and games of chance, information system services, Internet-based auction services, maintenance services, educational services and the supply of an internet-based auction service facility.”

The draft regulations available on the national treasury website.  — (c) 2014 NewsCentral Media

Share this article

  • John Mitchell

    I have one word for them, Bitcoin!

  • Louis Venster

    Pravin can kiss my ass. Shove this in the same place as his bloody e-tolls. US iTunes store FTW.

  • General JJ PanGirl

    No one thought how this would just make more people pirate software instead?

  • Kane Diamond

    …. and they are going enforce it by?

  • Nadim

    How are they going to enforce this? Are we going to create a firewall now that will block firms who are not registered for tax?

  • Bulldog007

    They are looking for new ways to steal money

  • Davebee

    I sure hope this isn’t the ANC’s version of Moore’s law on our taxes?
    Could be a Merc or six in here for the Zuma compound post 2014 elections?

  • Greg Mahlknecht

    They can’t. Consumers aren’t that dumb. They’ll so catch on they can set their region to somewhere other than South Africa to save 14%.

  • Bulldog007

    Clearly they are scraping the bottom of the barrel. I wonder what more he has in mind. Can he tax fornicaters? He’ll surel find something else and feed us more bovine excrement

  • Art Brigg

    Fat chance fat face.

  • Joe Public

    iTolls ?

    go fug yourself …

  • Vlooi

    This potato head wants to steal from even computer gamers now!

  • Pilot188

    Now here is a question – how on earth is the Gauvament going to enforce it?

    Buy music online here in SA while the content is hosted in the US with the corporate head office is Luxembourg for tax purposes.

  • Blackaffairs

    Taxing paid for child porn downloads might be interesting

  • Manfred Higgs

    You are assuming Apple would agree to do it in the first place, that is a pretty major assumption since they barely pay tax in their own country and can you imagine the admin overhead if every country tried to do this. The international vendors will never play ball, it simple isn’t worth it.

  • Manfred Higgs

    I love how they constantly mention how it is “in line with international trends” the only people internationally who have even begun to try this is the EU and they are the EU, you know use the same currency don’t really even have borders and even there it is a bit of a push.

  • TheSauceZA

    Bloody thieves…. they take so much and they still want more….Why does Pravin not find ways to better spend and manage what they take already … F@#$@# useless gov.

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