You may remember a call for electronic retailers and services offering goods and services to South Africans to be liable for tax such as VAT back in 2014.
Well, that policy is due for a review and Pricewaterhousecoopers (PwC) reckons Minister Pravin Gordhan will use his highly anticipated 2016 Budget Speech to do just that.
According to PwC, the policy needs to bring foreign-owned companies operating in the South African digital marketplace in line with their local counterparts. What this would mean is that services such as Uber would need to pay VAT as well as corporate income tax to the South African Revenue Services (SARS).
South African companies need to charge customers VAT so they can pay the VAT to SARS. South African companies also have to pay corporate income tax on profits generated in South Africa but at present this isn’t always the case for international services.
The best way to think of this is by comparing ShowMax with Netflix. Netflix is currently liable to pay VAT while ShowMax has to pay both VAT and corporate income tax. This skews the playing field and just makes it harder for South African services to compete.
During the 2015 Budget Speech, then Finance Minister, Nhlanhla Nene stated that regulations governing the provision of electronic services in South Africa would the be broadened and it’s expected that Gordhan will use the budget speech this week to do just that.
According to Charles de Wet, Head of Indirect Tax Services at PwC Africa, this move is a sign of the times.
“Many foreign suppliers of electronic goods and services to South African consumers are not subject to South African corporate income tax on profits generated here,” de Wet explains, “and this is an area that National Treasury must be considering in the light of declining revenues and a stalling economy.”
The widening of this scope could also see VAT being applied to services such as advertising through platforms such as Twitter and Facebook as well as in-app purchases in
South Africa is not the only country considering this, our neighbours to the south are considering a similar move.
The Australia, government is looking to claim tax on entities that make a profit there but have a base elsewhere thus avoiding Australian tax regulations. The Australian government will decide whether a company has been created with the sole purpose of avoiding setting up a base in the country to avoid corporate income tax.
What does this mean for the consumer at home? Well that’s unclear. Seeing as companies will now be required to pay tax on profits drawn from SA they could just pass those costs on to consumers, the other alternative is that they just close up shop.
Nothing is concrete just yet and it won’t be until around this time tomorrow when Finance Minister Gordhan takes the podium to tell us all how the budget will be split and whether we can turn the ever ailing rand around.
Godspeed, Mr. Gordhan, we’re glad we don’t have your job.
[Image – CC BY/2.0 Wikicommons]