South Africa losing out on millions in tax by keeping Starlink out

The South African Revenue Service (Sars) is losing out on millions in taxes it could’ve collected from Starlink because resellers are being chased out of the country.

Rather than pay a local company or Starlink directly, with VAT and other taxes collected in South Africa, those who want the service are forced to buy it from companies in neighbouring countries and pay a roaming subscription.

SpaceX’s fast and uncapped satellite broadband service has seen rapid adoption in South Africa in 2023, despite not being officially available locally.

Industry sources have told MyBroadband that SpaceX has deprioritised Starlink’s launch in South Africa due to onerous regulatory requirements.

These include SpaceX or a local partner needing 30% ownership from historically disadvantaged groups to obtain the necessary operating licences from industry regulator Icasa.

In addition, Icasa has not issued new operating licences for network infrastructure or service providers in 13 years.

Therefore, Starlink would either have to partner with a local company with the licences, or establish a compliant local subsidiary and buy licences from existing holders.

The Internet Service Providers’ Association of South Africa has said these licences can sell for over a million rands each.

Starlink kit in the Kruger powered with 518Wh portable power station

Between just two specialist importers — StarSat Africa and IcasaSePush — over 12,400 Starlink kits have been brought into South Africa.

That number does not account for units directly imported by individuals or other businesses for their own use.

For many people living in rural areas across the country, satellite connectivity is the only way to access the Internet.

MyBroadband’s tests have shown that Starlink’s speeds are well beyond the capabilities of older satellite broadband technologies.

The kit can also keep running with a small battery backup, offering connectivity when the cellphone tower in a rural community goes down during load-shedding due to limited or no backup power systems.

However, there is a caveat to using Starlink in South Africa without official local support.

Subscribers must have their kit registered with an address in a country where Starlink is already available and pay a more expensive roaming subscription, determined by the exchange rate between the rand and that country’s currency.

This can be paid directly by the customer or the specialist importer, who might charge a fixed price that ensures a profit margin while offering subscribers a stable monthly fee.

As a result of this situation, Sars is missing out on the taxes it could collect on the monthly subscription fee like other Internet services in South Africa.

We estimated how much tax South Africa is potentially losing in VAT due to the lack of official local Starlink support.

Determining a possible Starlink price in South Africa

To do this, we must speculate on a potential price for Starlink in South Africa without a roaming subscription.

We chose Nigeria’s fee as our baseline.

Starlink is generally more expensive in affluent countries and cheaper in less-developed ones.

Of the countries where Starlink is available in Africa, Nigeria’s economy is the most comparable to South Africa in size.

It is also the African country with the most expensive Starlink monthly subscription at the time of publication.

Customers in the West African country must pay 38,000 Naira per month for Starlink.

Nigeria charges a VAT rate of 7.5%, which means the subscription costs 35,348.84 Naira without that particular tax. This amount converted to R821.66 at the time of publication.

Adding VAT in South Africa on top of that price would put Starlink’s fee at R944.91.

Multiplying the VAT of the estimated 12,400 Starlink accounts in South Africa is about R1.528 million.

That is how much tax is potentially lost every month — just in uncollected VAT — due to Starlink not being locally available.

Instead, the roaming subscriptions South Africans buy include VAT going to other African countries.

If Starlink were officially available locally, South African companies offering the service would also have to pay various company taxes — including on profit from selling the service.

Starlink kits in storage at South African border post

Importing the Starlink kits is at least bringing in some money for the tax man.

According to one importer who spoke to MyBroadband, a Starlink kit’s import duties and VAT were around R1,900.

With at least 12,400 units already in the country, Sars has collected roughly R23.56 million in import taxes and Starlink kits in less than a year.

However, this is a one-off amount.

Even if the number of Starlink customers remained the same, which seems highly unlikely based on the service’s explosive growth since early 2023, the taxman would miss out on R18.94 million in VAT over a year.

Satellite expert fired warning over forex implications months ago

Q-KON Africa Group CEO and Twoobii chief engineer Dawie de Wet previously told MyBroadband that Starlink’s operation in South Africa was unlikely to be unlawful.

He explained that the spectrum Starlink operated in was coordinated on an international level by the International Telecommunications Union (ITU).

“All coordination aspects and any possible frequency interference are mitigated on an international level between the respective operators and is seldom dealt with on a national or regional forum,” De Wet said.

It should be noted that this doesn’t absolve Starlink from applying and paying for its radio frequency spectrum licences in South Africa.

De Wet warned that Starlink could face financial regulatory scrutiny in South Africa.

“There are actually many more principal aspects such as payment regulations, tax, and corporate compliance regulations that need to be considered,” De Wet explained.

This includes the roaming subscription being paid for in foreign currency, with no VAT going towards Sars.

“When Starlink scales to thousands of terminals, then the forex outflow [for Starlink equipment and monthly fees] would certainly need to be done through official channels,” De Wet said.

Dawie de Wet, Q-KON Africa Group CEO and Twoobii satellite broadband service chief engineer

Now read: Starlink rival OneWeb beats SpaceX to South African launch

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South Africa losing out on millions in tax by keeping Starlink out