Sars extracts its pound of digital flesh

South Africa’s tax authorities are right to seek to impose value-added tax on foreign suppliers of digital goods such as software, music, books and services, according to a tax expert at Deloitte. By Duncan McLeod.

Anne Bardopoulos

Anne Bardopoulos

The move by national treasury and the South African Revenue Service (Sars) to force foreign suppliers of downloadable digital goods and services to register to pay value-added tax (VAT) in South Africa makes complete sense, but some administrative issues must still be cleared up.

That’s the view of tax expert Anne Bardopoulos of Deloitte, who says treasury’s move to enforce the collection of VAT on foreign suppliers of intangible digital goods such as music, e-books and software, is the right one and brings South Africa in line with many other tax jurisdictions around the world.

Imposing VAT on foreign suppliers of digital goods is expected to raise hundreds of millions of rand per year, if not more, for the national fiscus.

“This shouldn’t be viewed as a new tax,” Bardopoulos says. “It’s just changing the way we enforce and collect it and it’s important for South Africa to move in line with the rest of the world.”

The new rules, introduced through an amendment to the VAT Act, are set to come into force on 1 April this year. “It will be a tight deadline as there are still quite a lot of administrative issues that haven’t yet been addressed,” she says, adding that the date is unlikely to change.

A major issue that must still be tackled is a requirement that suppliers quote their prices inclusive of VAT. When someone buys a product at their local retail store, the retailer is required by law to advertise the price with 14% VAT included; the tax cannot be added at the point of sale. For international online stores, this is more difficult to do because their shop fronts are advertising products and services not only to South Africans but to consumers worldwide.

“They could in theory use your [Internet protocol] address [to determine your location], but some countries have privacy protection laws, and they’d be required to install systems to determine [prices] at the point of browsing instead of at the time of check-out,” Bardopolous says. “Hopefully, there will be a further amendment to the VAT Act to deal with provisions for foreign e-commerce suppliers and how they may advertise their prices.”

With the changes to the VAT Act, the onus has shifted from consumers to suppliers to impose VAT and hand this over to Sars. Bardopolous says this makes sense as it’s easier for the authorities to deal with a thousand suppliers than trying to recover taxes from millions of consumers who either deliberately avoid paying the tax on digital downloads or who couldn’t be bothered to waste their time declaring this to Sars. The onus is now on suppliers to determine if they are subject to VAT.

Bardopolous expects larger online players — Apple, Amazon, Microsoft and so on — to comply with the rules. For one thing, they won’t want the reputational damage of being seen to be tax evaders.

Consumers may also not be able to get around the tax by switching to other countries’ online stores, such as Apple’s Kenyan store, for example. “The Kenyan store is in theory supposed to know who they are supplying to and should be registered for VAT and apply 14% VAT on sales to South African consumers.”

She says the only way South Africans may be able to avoid the tax is if they have foreign address and foreign bank account. Few people have both.

But enforcing the new VAT rules on smaller suppliers won’t be nearly as easy. Suppliers that sell less than R50 000 worth of goods to South Africans consumers each month do not have to register as VAT vendors. However, Bardopolous admits this amount is tiny, especially when converted into hard currencies such as the US dollar or the British pound.

Is the threshold practical? “It’s being questioned and was raised when proposals were released,” she says. “At first, South Africa didn’t want a threshold, but submissions to treasury said that thresholds should apply. Even the R50 000 is being debated — is it realistic? For smaller suppliers of digital products, it will be difficult to enforce.”  — (c) 2014 NewsCentral Media

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  • http://www.letsgethighandmarrygaypeople.com/ Gregory S. Balchin

    great, more money to be squandered. i can already see the dollar signs in the eyes of politicians.

    i’d have no problem with paying even a 20% tax on google play purchases if i knew that the potholes outside my house were going to disappear, or the internet infrastructure were going to magically improve.

    but no. they’ll take this fucking money and then say “EHHH YESSS UHMMM EHHH THE PRIVATE SECTOR MUST ALSO HELP EHH YAAHHH”

  • Dave Baker

    Thats an argument that applies to all forms of taxation and a subject for political boards (end elections). I too want more effective spending… no argument but irrelevant here.

    The question is “Is it fair to apply VAT on other imports and dodge on Digital Goods?”
    That would mean one can acquire M/S Office, Adobe whatever etc

  • http://www.letsgethighandmarrygaypeople.com/ Gregory S. Balchin

    much like my salary is earned by me doing hard work, so too should tax.

    what has the sa govt done to deserve 14% of all digital sales? sit there and not deliver on promises? let the rand slip further towards irrelevance as the president runs his mouth?

    yes, it’s the law to pay tax etc. but doing things because “that’s the way it’s done” is a pretty stupid justification

    watching the government do what it’s doing at the moment is like giving a kid all the resources in the world to get a great education and watching him sell his textbooks to shoot up some heroin.

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