Fine tuning VAT on Electronic Services 

2017/18 South African National Budget Expectations

South African E-Business Service providers have faced much uncertainty since the introduction of VAT on electronic services. The VAT treatment of the supply of cross-border intangibles and services needs to move at the pace of the digital economy, which changes daily.

Ultimately, South Africa introduced the VAT rules on electronically supplied services in order to protect local suppliers, address VAT leakage and to tax consumption in South Africa, in the form of an amendment to the VAT Act in June 2014.

The current legislation requires refining and a shift from listing and defining specific types of electronic services to an all-encompassing definition of services supplied remotely, directly to consumers (B2C).

The current amendment requires foreign electronic service companies supplying services to qualifying recipients to register for VAT in South Africa. The electronic services which fall within the ambit of the VAT Act, are detailed in the regulation published in GN R 211 and includes online games and music, internet-based auction services, e-books, subscription to journals etc. This regulation was under much debate at the time between the different stakeholders.

One of the main concerns was that the regulation included certain types of electronic services that are predominantly of a business to business (B2B) nature and does not distinguish between B2B and business to consumer (B2C) supplies.

As a result, ‘the supply of software’ and ‘subscription to a database’ was deleted from the final Regulation. Other supplies, however, such as the ‘subscription to a web application’ or ‘website’, remained. Depending on the manner in which software is supplied, or databases are made available, there may therefore be scope for the supply of software and / or subscription service to a database to still qualify as an electronic service.

This amendment to the Regulation has therefore led to greater uncertainty and impractical application, instead of limiting its scope.

New Zealand introduced GST on “remote services” in October last year. The legislation applies to B2C supplies only. The new legislation is focused on taxing consumption in New Zealand on services supplied remotely to consumers directly. . These services include any services supplied digitally or remotely, including electronic services and remotely provided traditional services like accounting, legal and consultancy work . This ensures that the playing field is level and remote service suppliers are treated equally, which is not currently the case with the South African legislation.

How can Deloitte help:

Deloitte’s global network of indirect tax and customs and global trade professionals provides advisory services along with a range of efficient outsourcing and co-sourcing options, applying innovative technology solutions.

Failing to account for VAT, GST, Sales & Use Tax, correctly can have a significant impact on business costs and cash flows. Deloitte can help businesses to reduce costs, manage risk, and gain confidence about the way they are managing their indirect tax affairs. Our services include:
Indirect tax consulting

Business model optimization for indirect tax

International indirect tax compliance and outsourcing

Transactional consulting for indirect tax

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