It netted digital VAT, but can SARS harpoon web's big fish?

30 August 2015 - 02:00 By Arthur Goldstuck

When the South African Revenue Service announced last year that South Africans would start paying VAT on purchases of digital downloads from foreign stores, most dismissed it as wishful thinking. How could little SARS get global giants such as Amazon and Apple to charge VAT and pay it over?A little more than a year later, SARS is having the last laugh. South Africans now routinely pay VAT on digital purchases from major international websites.Foreign companies, it turns out, are only too happy to comply with local sales tax requirements when these have little impact on their bottom lines and improve their corporate image.SARS took a bold approach, casting the net as wide as its understanding of digital shopping allowed. From e-books and music to gaming and gambling to subscriptions and storage services, it found South Africans going shopping in every digital nook and cranny.Ironically, it has been unable to get its hands on South Africa's most high-profile digital spending, such as Google and Facebook ads. Because most of it is from businesses, it falls under company tax, and no one has cracked that digital code.story_article_left1"Our law was originally written on the basis that an individual purchaser of services from offshore was required to go to SARS and pay VAT," says Charles de Wet, head of indirect tax at PwC Africa. "But there was no way of SARS enforcing it and no one did it. Physical goods work better because they come through border controls."To create parity between local and global suppliers, they introduced rules that came into effect in June last year."It was based on requiring the foreign supplier to register in South Africa if supplying local residents or payment was made from here, and turnover exceeded R50000 in a 12-month period."While some may be surprised that Amazon and Apple chose to toe the SARS line, the next challenges will be even greater, says De Wet."To what extent do you expand that list? And how does SARS have an impact, for example, on a Russian subscription service that does not register?"Then there are trade issues, such as the VAT threshold, which is set at R1-million for South African companies. The Organisation for Economic Co-operation and Development recommends that local and foreign businesses should be subject to the same rules.story_article_right2"But from a competitive in-country perspective, it makes sense that it's a much lower threshold, as they don't have local costs," says De Wet.The elephant lurking in the corner of the room is the far larger issue of company tax."The moment you open an office, employ staff and supply services here, it would be subject to South African tax. The difficulty in the digital space is that there may be an office with the company name, but the trading entity has no presence here."How can you deem a proportion of the income being in the South African tax net? That's what the OECD is grappling with. Its guidelines were always based on the physical movement of goods. There has been no transition of that into the digital space. No one has the answer, so by default you have the VAT thing."The one certainty, however, is that the debate will soon begin to move beyond the default.Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on Twitter on @art2gee, and subscribe to his YouTube channel at http://bit.ly/GGadgets..

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