Taxation of digital services seems to be the something that’s on the mind of many governments right now. The UK government wants to tax Facebook. Our very own Honourable Mthuli Ncube is also thinking about taxing Netflix and from 2019, South Africa will be following suit.
The tax will impact services that are supplied from abroad by an electronic agent, electronic communication or the Internet are now electronic services for the purposes of VAT. The move is well thought-out and the government will exclude education and telecoms services from paying this digital VAT.
Which type of services will be taxed as well? Well services that fall under the following descriptions;
- Software subscription services
- The use of software by an entity in South Africa provided electronically by its holding company situated abroad (unless the exclusion applies)
- Cloud computing
- Advertising services
- Any reservation services made via an online platform
Fair enough right?
Well, when you consider the fact that Netflix supremacy is a bad thing for DStv (a company which actually employs human beings in South Africa) it only makes sense for the government to want to get what it can from these kind of companies. I think it’s fair enough but some people may differ from me on that one. In the case of other companies that are not Netflix, I still think it’s fair that the government is using this avenue to increase its tax base. Especially once you consider the popularity of services such as Facebook and Netflix.
The one negative that will come from this move is that the end-users are most probably the ones who will suffer most as whichever company is being taxed will end up passing on these costs to users. Using Netflix as an example, they’ll probably just increase their pricing. VAT is usually passed onto customers and it would be an anomaly if this wasn’t the case with this new tax.
The digital services tax will be put into effect on the 1st of April 2019, which gives affected companies more than enough time to register with SARS (South Africa Revenue Service).
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