Industry experts have cautioned that the amended regulations regarding the provision of foreign electronic services for tax collections under the Value Added Tax Act, introduced in April, could be problematic and difficult to enforce.
Gerhard Badenhorst, a director in the tax and exchange control practice at Cliffe Dekker Hofmeyr, said foreign suppliers of electronic services cannot be forced to collect and hand over VAT from local consumers.
He said Treasury introduced these amendments in an effort to reduce the risk of distortions in trade between foreign and domestic suppliers, but said that “the implication is that everything that can be supplied electronically, even to businesses, is now subject to VAT”.
The amended regulations state that foreign suppliers of “electronic services” are those that provided more than R1 million of services over the preceding 12 months and they will be obliged to register for VAT in SA.
“For the consumer making use of these electronic services in SA, this could mean an additional cost of 15%,” he said.
He also said cross-border services were notoriously difficult to tax but that the amended regulations have widened the definition of “electronic services” to include any electronic services supplied by a foreign supplier via an electronic agent, electronic communication or the internet for any consideration.
The amended regulations do not provide a definition for “telecommunications services” – but only the telecommunication services are exempt, not any content.
“This means that fixed and mobile telephone services and internet access are not subject to tax, but any sound, data, text or videos conveyed or transmitted via these mediums would be,” Badenhorst said.
Examples of electronic services included electronic games, on-line betting or wagering, internet-based auction services, e-books, digital images, music and subscription services to magazines, journals and newspapers.
Under the new regulations computer software, software applications, cloud computing, data warehousing, on-line training and web hosting are also considered to be electronic services.