VALUE-ADDED TAX IN THE DIGITAL ECONOMY: A FRESH LOOK AT THE SOUTH AFRICAN DISPENSATION

Ruddy Kabwe Ruddy Kabwe,Sp Van Zyl Sp Van Zyl

doi:10.17159/obiter.v42i3.12899

Abstract

The online purchase of digital goods has the propensity to generate tax liability involving a notable rise in administrative costs for tax authorities. Online transactions involving the supply of digital goods by foreign businesses to South African consumers are subject to Value-Added Tax (“VAT”). Since 2014, the Value-Added Tax Act 89 of 1991 provides for registration and the reverse-charge mechanism as a means to collect VAT on online cross-border trade in digital goods. From 1 April 2019, significant changes to the VAT Act have been implemented regulating VAT on online cross-border trade in digital goods. This article examines these amendments by way of a comparative analysis of similar legislation in Australia and the European Union with the main aim of making recommendations for the adequate and cost-effective collection of VAT on online cross-border trade in digital goods.

Highlights

The growth of the digital economy has seen consumers buy digital goods[1] such as electronic books (e-books), games and music effortlessly at the click of a button
152 A threshold applies of €100 000 up to which one piece of evidence is sufficient to determine the place of supply. The application of this threshold is subject to the following conditions: 1) the total value of TBE services provided by the supplier from his business establishment or a fixed establishment located in a member state to customers who are established, have their permanent address or usually reside in other member states does not exceed €100 000 in the current and in the preceding calendar year; 2) the item of evidence is provided by a person involved in the supply of the services other than the supplier or the customer; 3) the item of evidence is listed in points (a) to (e) of Article 24f of the Value-Added Tax (VAT) Implementing Regulation
It is submitted that where an intermediary has verified that the underlying supplier has provided consistent information in respect of the value of the “electronic services”, billing, place and time of supply, the intermediary must be deemed to have discharged itself of the duties imposed on it by the VAT Act

Summary

SUMMARY

The online purchase of digital goods has the propensity to generate tax liability involving a notable rise in administrative costs for tax authorities. Online transactions involving the supply of digital goods by foreign businesses to South African consumers are subject to Value-Added Tax (“VAT”). Since 2014, the Value-Added Tax Act 89 of 1991 provides for registration and the reverse-charge mechanism as a means to collect VAT on online cross-border trade in digital goods. From 1 April 2019, significant changes to the VAT Act have been implemented regulating VAT on online cross-border trade in digital goods. This article examines these amendments by way of a comparative analysis of similar legislation in Australia and the European Union with the main aim of making recommendations for the adequate and costeffective collection of VAT on online cross-border trade in digital goods.

INTRODUCTION

12 OECD Committee on Fiscal Affairs Electronic Commerce

50 Musgrave “Digital Taxes Around the World

CONCLUSION