VAT on digital goods and services in SA from April: Treasury

Jacques

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May 12, 2004
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This article is clear as mud. When writing these type of articles, please ask a few more basic questions.

A tax expert is quotes as saying:

“It is a profit issue at the end of the day. VAT at 14% in South Africa is a material number in your profits so online businesses will pass that on [to consumers]. There is not much doubt in that,” said Soverall.

If this VAT is meant on purchases from someone within South Africa (or using a South African bank account), who purchases something from a company from outside of South Africa, then it's not possible that the seller will be the one adding this or responsible for this. Those companies are only responsible to the laws of the countries they operate from.

If the buyer now have to pay this in future, how is that VAT payment going to be managed by SARS?
Would it depend on voluntary reporting of purchases to SARS, along with VAT payment?

Looking forward to a follow-up article that answers these questions.
 

Baxteen

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Practically speaking I can see them trying to do this is 2 ways.

attempt to force the selling company to pay tax for things sold to us, and that will fail because they will then have to charge us before we buy, so fail.

the second option is adding really really complicated code to bank systems. you spend 1USD on a service that has to pay tax, now lets add 14% to that one USD to the cost on your side and send that to SARS. fail again,

the other option is relying on user honesty, when submitting tax returns. wait, fail again.

if anyone else has an idea of how they will implement and prove you paid X for subscription Y over the year post it, I mean maybe we will find the solution for them. God knows they have not thought the implementation through
 

Rkootknir

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I don't - I think Apple, Amazon, Steam and PayPal will tell them to go fsck themselves. Unless I am missing something, there is no way this can be enforced unless international companies comply and why should they?
Most of these already have some provision for VAT on digital goods as they definitely add VAT for customers in the EU \ UK which is then paid over to the relevant tax authority. It will probably be quite simple for SARS to request use of the same mechanism?
 

Macethy

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Practically speaking I can see them trying to do this is 2 ways.

attempt to force the selling company to pay tax for things sold to us, and that will fail because they will then have to charge us before we buy, so fail.

the second option is adding really really complicated code to bank systems. you spend 1USD on a service that has to pay tax, now lets add 14% to that one USD to the cost on your side and send that to SARS. fail again,

the other option is relying on user honesty, when submitting tax returns. wait, fail again.

if anyone else has an idea of how they will implement and prove you paid X for subscription Y over the year post it, I mean maybe we will find the solution for them. God knows they have not thought the implementation through

I think all of your assumptions are spot on. They either try force the seller to charge and pay over the VAT, which will never happen. They force the banks to monitor your transactions and take it directly from your account and pay to SARS, which will never happen. Or they can hope that everyone is honest on their tax returns and add another field saying "Foreign digital purchases during the year (please state the amount in USD)", which will never happen.

Just another law thought out by people completely in the dark and will be pushed through without anyone actually understanding what it is and how it would work...
 

quovadis

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Why not do the logical thing - Erect E-Tolls over the ISP's gateways and everytime we access a foreign website we get charged R2-5 depending on number of kilometres.
 

fonoi

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According to the EU, there is no responsibility on companies residing in the EU to pay tax to another country, the onus is on the customer. Not sure how Pravin is going to get around that one.

New rules from 2015


From 1 January 2015, telecommunications, broadcasting and electronic services will

always be taxed in the country where the customer belongs*

– whether customer is a business or consumer

– whether supplier based in the EU or outside

* For a business (taxable person) = either the country where it is registered or the country where it has fixed premises receiving the service.

* For a consumer (non-taxable person) = the country where they are registered, have their permanent address or usually live.



VAT - Reverse Charge - Mechanism

"Reverse Charge" is a part of the VAT law in a growing number of European countries.

It states that the VAT (Value Added Tax) for Goods and Services delivered inside the country by a foreign company is owed by the recipient of the goods and not by the foreign service provider/supplier.

VAT must not be charged on invoices to the recipient. By law, a clear statement must appear on each of these invoices indicating that the liability for the payment of VAT is reversed to the recipient.

The recipient has to calculate, report and pay the VAT (it may be recoverable if the recipient is VAT registered).

The foreign service provider/supplier may be entitled to a VAT refund claim for all VAT charges by local suppliers.

Please contact a local accountant or the VAT authorities in the country in which the event will take place, well in advance of the time it is organized/scheduled to commence.
 

Fulcrum29

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Most of these already have some provision for VAT on digital goods as they definitely add VAT for customers in the EU \ UK which is then paid over to the relevant tax authority. It will probably be quite simple for SARS to request use of the same mechanism?

They are also registered as entities in those countries.
 

j4ck455

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Greedy cANCer pigs at the trough, this hair-brained scheme was obviously conceived by the very same idiots that thought etrolling would be widely accepted.

I hope foreign companies tell them to go rotate on a cactus.
 

Fulcrum29

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I do have a question, say the “export country” do not comply and SARS takes the tax without approval by scrutinising your transactions, meaning that you were never invoiced (tax calculated) by the “export country”, who have the onus to have 1:1 bookkeeping, hence they can take without asking or will it be standard procedure where you owe SARS?
 

Jacques

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May 12, 2004
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313
An additional thought:

The Government Notice says:

REGULATIONS PRESCRIBING ELECTRONIC SERVICES FOR THE PURPOSE
OF THE DEFINITION OF “ELECTRONIC SERVICES” IN SECTION 1 OF THE
VALUE-ADDED TAX ACT, 1991

...by virtue of the definition of
“electronic services” in section 1(1) of the Value-Added Tax Act, 1991 (Act No. 89 of
1991), hereby make the regulation set out in the Schedule hereto.

http://www.treasury.gov.za/public comments/E-services Regulation.pdf

Where is this "electronic services" mentioned in Section 1 or 1(1) ?

See 1.Definitions
http://www.acts.co.za/value-added-tax-act-1991/
 

twiga

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Amazon, Apple, Blizzard etc are not going to register as a tax paying entity in ZA.

This will ultimately alienate South African consumers from buying goods on the Internet as the above suppliers will simply choose not to service customers in this country. Let's face it, the South African purchases make a very small contribution to these company's bottom lines. They will rather shut us out: "Goods not available in your country", than jump through all the hoops SARS would require to collect the tax revenue.
 

MagicDude4Eva

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BTW, if you read the announcement they will also charge VAT on "Information system services" - so in simple terms it means, that they would charge for Google Apps subscriptions, AWS, DNS, hosting, cloud services etc - now this will create an epic mess and is just not governable.
 

Fulcrum29

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BTW, if you read the announcement they will also charge VAT on "Information system services" - so in simple terms it means, that they would charge for Google Apps subscriptions, AWS, DNS, hosting, cloud services etc - now this will create an epic mess and is just not governable.

I said it in rpm's thread, this is like a 14% overhead increase, when it comes to the larger employers, that’s a few salaries… ahem.
 

biena

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Dec 6, 2006
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Is the idea to blanket charge VAT on all international online credit card transactions?? That is really the only way to enforce this, well at the consumer level.
Cannot just do a blanket charge, I order physical goods and pay with credit card, this is only applicable to digital goods.

I think all of your assumptions are spot on. They either try force the seller to charge and pay over the VAT, which will never happen. They force the banks to monitor your transactions and take it directly from your account and pay to SARS, which will never happen.
People in California also said for years that the sellers will never pay tax, slowly the companies are caving and charging state tax.

Or they can hope that everyone is honest on their tax returns and add another field saying "Foreign digital purchases during the year (please state the amount in USD)", which will never happen.
This is big laugh, California had this on their tax forms "Goods bought out of state", you are supposed to keep track of what was bought out of sate and then pay the 4% state tax. (don't quote me on the 4% cannot really remember). I do not know a single person who ever voluntary declared that.

For VAT to be charged the supplier has to have a VAT number if I am not mistaken. Do government really expect foreign companies to now obtain SA VAT number ?
 
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Allin

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Why not do the logical thing - Erect E-Tolls over the ISP's gateways and everytime we access a foreign website we get charged R2-5 depending on number of [-]kilometres[/-]Megabytes.

Fixed it for you
 
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