Registration as VAT vendors required from 1 June 2014
International internet companies that supply e-books, apps, music and other digital services in South Africa, will have to register as value-added tax vendors in South Africa from June 1.
These new regulations was announced by former finance minister Pravin Gordhan in last year’s Budget. It resulted from international efforts to close tax escapes in the digital economy.
Registration for VAT in South Africa is required where such services are supplied to residents of South Africa or payment is made from a South African bank account. Vat is payable on supplies of R50 000 or more. Large internet groups such as eBay, Apple, Amazon and Google may be affected.
How was VAT paid in the past?
South African entities who bought electronic services from abroad were required to declare the purchases to the South African Revenue Service (SARS) and pay the VAT. Consumers were mostly unaware of these requirements and VAT was generally not paid.
The amendment is an effort of leveling the playing field between local and international suppliers. In the past, digital services bought from foreign suppliers attracted no VAT, but the same item, bought from local suppliers, was subject to South African VAT. Local suppliers were disadvantaged.
The global trend is to ensure that these supplies are taxed, particularly when sold cross-border, preventing loss of tax that could amount to millions. With the growing digital economy, the potential revenue loss is growing rapidly.
Criticism on new VAT regulations
The implementation of the new regulations has not been without criticism and challenges. International guidelines on VAT were published by the Organisation for Economic Co-operation and Development (OECD) earlier in the year, stipulating that domestic and international businesses should be treated the same.
A criticism is that the threshold for a local business to register is R1 million but for a foreign business it is R50 000. The difference is a concern. Another irregularity is that no distinction is made between Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions, in the SA regulations. The technical view is that there shouldn’t be a difference in taxation because of a different status of the consumer.
Another concern is that SARS is not in a position to effectively enforce the regulations as most of the suppliers are situated overseas.
Under the previous provisions SARS was only at risk of losing revenue but the new regulations also brings a risk of a “missing trader”, where VAT charged is not paid to SARS. If this happens SARS will be worse off than before June 1, as the local business will claim input VAT, but they will not recover the output VAT from the foreign business.
Wait and see, is the only option!
To register for VAT is their responsibility. Your responsibility is to get good insurance cover!
Contact Budget Insurance today to get instant quotes for all your Insurance needs!
This article was posted on Budget Insurance and is reposted with permission.