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

FuLL_MeT4L

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You are saying exactly what I'm saying.

I see this only applying to foreign companies dealing product inside South African in RANDS.

Anything directly purchased from the US/UK/Other digital source will not apply.

Exactly how I see it. This really isn't going affect a massive number of vendors, and I think SARS will take the lazy option and just target the big guys.
 

EasyUp Web Hosting

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The added taxes on digital goods is likely to push the price of goods up, a tax expert has said.

I'm not tax expert, but I could have told you this as well. Eish, some people... :confused:
 

Jola

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I don't think they need too, they only need to enforce it with Visa / Mastercard or the local banks to apply 14% to the converted transaction fee if the transaction is taking place on a foreign gateway.

So how do they distinguish between a physical purchase from Amazon, where VAT is paid on entry to SA, and an electronic purchase from Amazon ? Or a purchase where the tax is pre-paid, as happens on some Amazon purchases (eg Kindle).
 

Juice

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You are saying exactly what I'm saying.

I see this only applying to foreign companies dealing product inside South African in RANDS.

Anything directly purchased from the US/UK/Other digital source will not apply.

They'll VAT those up after the sale using your bank account transactions as reference. Just like VAT at the post office or airport when you import physical goods. So it won't apply to the foreign companies, no, but it will still be applied to YOU.
 

Juice

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So how do they distinguish between a physical purchase from Amazon, where VAT is paid on entry to SA, and an electronic purchase from Amazon ? Or a purchase where the tax is pre-paid, as happens on some Amazon purchases (eg Kindle).

I suspect that they're not going to. They're going to ask you to submit receipts to show you already paid the VAT on the physical import.
 

Jola

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I suspect that they're not going to. They're going to ask you to submit receipts to show you already paid the VAT on the physical import.

And when the taxes are prepaid by Amazon, they do not give you any documentation ?

That is just not going to work, they can't levy you based on credit card charges.
 

Space_Chief

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And when the taxes are prepaid by Amazon, they do not give you any documentation ?

That is just not going to work, they can't levy you based on credit card charges.

Who said they'd be doing that? (Charging credit cards)?

And how can they distinguish credit transactions done while physically being abroad and in SA via internet? You travel abroad and pay for anything, and they're gonna charge you VAT as well on that?

Never mind money transfers via PayPal not for goods or services.
 
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sajunky

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And when the taxes are prepaid by Amazon, they do not give you any documentation ?

That is just not going to work, they can't levy you based on credit card charges.
It looks like they shift onus on you to prove that VAT has been paid. Very dangerous trend. This legislation sets some precendence, as so far it was responsibility of VAT vendor, not a consumer.
In addition not all money transfers are purchases. I think they will not charge you on the transfer, but you will have to declare or submit proof of VAT paid on your tax return.

One question: You don't pay VAT on local services where local service provider is not a VAT vendor. Up to some amount of turnover SP do not have to register. So why they require VAT on all digital services (in taxable category)? There is lot of inconsistency in this legislation which breaks a clean incremental VAT chain philosophy.
 

SauRoNZA

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They'll VAT those up after the sale using your bank account transactions as reference. Just like VAT at the post office or airport when you import physical goods. So it won't apply to the foreign companies, no, but it will still be applied to YOU.

Where on earth did you get that idea from?

Seems people are making massive assumptions about all of this and adding a whole lot more drama than there really is.

No way in hell SARS is capable of tracking every transaction.
 

Space_Chief

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Where on earth did you get that idea from?

Seems people are making massive assumptions about all of this and adding a whole lot more drama than there really is.

No way in hell SARS is capable of tracking every transaction.

I have to agree that there is a lot of FUD going on. So far Pravin said that foreign businesses which sell to us must charge VAT and hand that over to SARS. They're supposedly copying the European Union on this, but this policy only applies to the countries within the European Union or the European Economic Area. I bet the Europeans would love the whole world to hand VAT over to them, but it is not happening. Does Godaddy hand over VAT to Europeans?

Funnily enough for VAT to apply worldwide in such a way, unless acted on by bilateral or multilateral treaty, the whole world would have to be under one government. This would make everything cost the same price for everyone with one form of GST or VAT or no taxation at all, for everyone. It seems governments want their cake, and they want to eat it too.
 
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Paul Hjul

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SARS are NOT being transparent on this issue at all. The VAT legislation works on the general principle that the vendor must pay over the revenue of what in essence is a consumption tax on a value added basis [the value-added refers more to the computation principle than the underlying justification of the tax - VAT is a consumption tax] but there are exceptions and the two pertinent exceptions concern a the post office (where it isn't SARS or the Act that make the exception but rather an arrangement [under the Act] with SARS where the PO is under and obligation to act as a vendor and they hold onto your good) and the contracting of services under s14(1). B39-2013 appears to seek to create a new type of enterprise which is a foreign supplier of electronic services, such an enterprise will have to serve as a vendor (without any necessary presence in South Africa) if it makes taxable supplies in excess of 50k a year. So the obligation does not shift to the consumer but we now have a deeply protectionist move - different thresholds for a vendor to have to register and they are designed to protect local electronic service providers - which undoubtedly goes against WTO rules etc ...

BUT B39-2013 isn't what public comment is sought on but rather a set of regulations that make no real legislative sense because no scope in B39 arises for the Minister to make regulations.

A core problem I am seeing in the status quo is that VAT fundamentally is charged in a manner to create an import overhead - the 10% rule in s13(2)(a). Now if the intention of the regulations and the statutory amendments which the regulations appear to presume (I will be inquiring as much from them) are aimed at precluding a customs approach and instead ensuring that the 14% really is charged on a pre-tax basis (so discounting any sales taxes and VAT from the jurisdiction from which the content is being delivered) such that it affords foreign based content sales agencies an opportunity to diver consumption taxes from the export country to South Africa then it is an improvement. However having looked at the documents I am less confident that SARS is actually doing anybody (including itself) any favours and this legislation looks like something straight from the Zumastration playbook of protectionism, moves to damage activities perceived to be "white" (the remarks about dogs etc ...), poorly drafted legislative enactments and a blatant disregard for due process with pretences at public participation.

There is a pressing need for the SA fiscus to address a growing reality of digital content sales and if they fail to do this they will simply create all sorts of problems down the line, but addressing this reality means understanding the nature of what is happening rather than looking for a cash cow or adopting protectionist measures. The VAT system has been adopted as an improvement on sales tax in being more efficient and less onerous on the honest consumer, we really shouldn't move away from that.
I have to agree that there is a lot of FUD going on. So far Pravin said that foreign businesses which sell to us must charge VAT and hand that over to SARS. They're supposedly copying the European Union on this, but this policy only applies to the countries within the European Union or the European Economic Area. I bet the Europeans would love the whole world to hand VAT over to them, but it is not happening. Does Godaddy hand over VAT to Europeans?

Funnily enough for VAT to apply worldwide in such a way, unless acted on by bilateral or multilateral treaty, the whole world would have to be under one government. This would make everything cost the same price for everyone with one form of GST or VAT or no taxation at all, for everyone. It seems governments want their cake, and they want to eat it too.
 

Juice

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...as so far it was responsibility of VAT vendor, not a consumer.

Only in South Africa. For imports, the onus is on YOU, the importer, to pay VAT at the point of entry (post office or airport).

Juice
 

Juice

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Where on earth did you get that idea from?

Seems people are making massive assumptions about all of this and adding a whole lot more drama than there really is.

No way in hell SARS is capable of tracking every transaction.

Surprisingly, they can, because the banks will do all the heavy lifting and just send it to them to tax you. The assumption is based on the fact that transactions made through local banks are in the scope of the regulations and also that it is just about the only way short of an 'honour' system to facilitate the collection of VAT on digital goods and services.
 

Baxteen

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Value added Tax right, so if the thing being taxed added value to the pereson being taxed?

playing WOW does not add value it removes(arguably at least) therefore I cannot be Charged VAT on it.

education obtained was not value added but value NEEDED seeing as the current system is useless, therefore you can also argue you should not pay VAT on it.

this argument can be used for almost anything and is worthless but hey maybe it made some one else smile as well....
 

Arthur

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What intrigues me is how this affects software distributors and vendors.

At present there's a loophole that allows foreign-based vendors to bypass the SA VAT net for direct internet sales.

Let's take the case of a South African in SA who wants to buy a licence for VMware ESXi Essentials. He basically has two options:

1. Order (via a SA dealer) from a local VMware distributor like Workgroup or First Distribution. The end-user pays the Rand-equivalent of $500 plus 14% VAT, because the distributor (and SA-based reseller) is a local company and is obliged to levy VAT.

2. Buy directly off the VMware website, paying $500 on her credit card. No VAT is levied.

Bottom line: It is more expensive for a local user to buy the software off a local vendor than on the web, simply because no VAT is levied on VMware's website. This cannibalises local sales, and a portion of SA sales for SA end-users escape the VAT net.

This is what SARS is trying to fix, I suspect. And that's not a bad thing, because it puts international players on the same footing price-wise as local players, all other things being equal.
 

Tns

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so if i pay my game subs i will have to pay vat? lol aint going to happen but what will happen is "this service is not available in your country"
 

ooogz

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I see more piracy happening in sa bec of this... maybe it's just me
 

Space_Chief

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What intrigues me is how this affects software distributors and vendors.

At present there's a loophole that allows foreign-based vendors to bypass the SA VAT net for direct internet sales.

Let's take the case of a South African in SA who wants to buy a licence for VMware ESXi Essentials. He basically has two options:

1. Order (via a SA dealer) from a local VMware distributor like Workgroup or First Distribution. The end-user pays the Rand-equivalent of $500 plus 14% VAT, because the distributor (and SA-based reseller) is a local company and is obliged to levy VAT.

2. Buy directly off the VMware website, paying $500 on her credit card. No VAT is levied.

Bottom line: It is more expensive for a local user to buy the software off a local vendor than on the web, simply because no VAT is levied on VMware's website. This cannibalises local sales, and a portion of SA sales for SA end-users escape the VAT net.

This is what SARS is trying to fix, I suspect. And that's not a bad thing, because it puts international players on the same footing price-wise as local players, all other things being equal.

That's a bit simplistic. In 1, you get a cheaper product but you don't get local support.

I also don't see a point for 2 where local support is not required or beneficial. Why do we need to pay middlemen? Yes it gives people the opportunity to work, but couldn't they work developing and supporting SA home grown software or where local support really is essential?

I'm just not convinced one needs local middlemen for everything.

And this argument could be extended to direct imports of physical goods too. Is it fair on Sony SA support that I can import my Vaio directly from Japan? Or even take that a step back, is it fair that I imported a domestic Japanese NEC LaVie when I could have purchased a Mecer/Acer/Macbook in SA supporting local channels? Sure, no-one here sells NEC products officially, but essentially all laptops are the same.

Any time I import I cannibalise. Any time I have a hobby which is alternative to mainstream - e.g. I like Criterion Collection films, foreign language films and some animes. Every time I buy such a product, I disadvantage local channels.

I can understand however, that SARS wants VAT. I can understand that stimulating local business is good. I just don't know if all forms are equally good. If we're just helping create "parasite" (forgive the negative connotation) type jobs, I think we're wasting our money. Create jobs which add value. Don't offer protectionism for businesses which are providing no value. Rather the business should provide value and then it won't even need such protection measures.

I can however understand the conflict of interest too. Some guy sees that Paragon NTFS for Mac has no local support. They approach Paragon in Germany and obtain local rights. They create support jobs here and train employees. They then sell the product with 30% mark up and Paragon stops direct sales. Does this scenario benefit the user? I'd say not. I'd prefer the guy created a Paragon NTFS for Mac alternative and then developed that. He could sell worldwide from his offices in JHB.
 

Praemon

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What intrigues me is how this affects software distributors and vendors.

At present there's a loophole that allows foreign-based vendors to bypass the SA VAT net for direct internet sales.

Let's take the case of a South African in SA who wants to buy a licence for VMware ESXi Essentials. He basically has two options:

1. Order (via a SA dealer) from a local VMware distributor like Workgroup or First Distribution. The end-user pays the Rand-equivalent of $500 plus 14% VAT, because the distributor (and SA-based reseller) is a local company and is obliged to levy VAT.

2. Buy directly off the VMware website, paying $500 on her credit card. No VAT is levied.

Bottom line: It is more expensive for a local user to buy the software off a local vendor than on the web, simply because no VAT is levied on VMware's website. This cannibalises local sales, and a portion of SA sales for SA end-users escape the VAT net.

This is what SARS is trying to fix, I suspect. And that's not a bad thing, because it puts international players on the same footing price-wise as local players, all other things being equal.

There's actually no such loophole, at least when looking at it from a South African perspective. While there's no direct VAT levied at the time of the transaction by the foreign company, the person who buys the license still has to pay VAT to SARS within 30-days. So in this example it would make no difference in the final cost since VAT has to be paid regardless (the onus on paying the VAT just shifts from the company in scenario 1 to the consumer in scenario 2).

So SARS is trying to ensure that consumers in scenario 2 pay over the VAT, since the vast majority don't. Perhaps they'll monitor international transactions and then if a foreign company exceeds a threshold of say R1 million, they'll be "forced" to register locally for VAT or the banks will block their transactions. But that could be a legal minefield, so who knows how they're going to achieve this. Guess we'll find out on 1 April :p
 
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