VAT could soon apply to all electronic services

Finance minister Malusi Gigaba has published draft regulations which propose changes in the VAT Act.

If the regulations are implemented, this will result in changes to the VAT treatment of electronic services, according to a release by PwC.

According to the 2014 amendments to the VAT Act, foreign suppliers of electronic services are required to register for VAT where supplies exceeded R50,000.

These electronic services included references to games, Internet-based auction services, e-books, audio-visual content, still images, and music and subscription services – but excluded services such as cloud computing and software.

The new draft regulations expand the scope of this classification to include cloud computing and many other services.

The amendments will remove specific electronic services categories within the VAT Act and redefine the classification to include any service supplied by means of an electronic agent, electronic communication, or the Internet.

This excludes the supply of telecommunications services and educational services which are regulated in another country.

The new definitions will include many services previously not included, said PwC, including:

  • Supplies of software, anti-virus and cloud-computing.
  • Administrative services in a corporate group environment delivered electronically.
  • Online advertising.
  • Broadcasting.
  • Access to databases and information systems.
  • Any consulting services delivered online, including on a pay-by-use basis.
  • Training via e-Learnings.
  • Monetising electronic agents, electronic communication, or websites.

The Treasury has allowed for comments on this before 22 March. If the amendments are enacted, they will become effective on 1 October 2018.

Now read: Gigaba raises VAT to 15%

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VAT could soon apply to all electronic services