Major overhaul of VAT on electronic services
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ON BUDGET Day, National Treasury released updated draft regulations on the VAT taxation of electronic services provided by foreign companies. These changes were mentioned in the Budget.
A statement by auditing firm PwC says that in 2014 the VAT Act was amended to include in the definition of “enterprise” the supply of “electronic services” by foreign suppliers, which were required to register for VAT where supplies exceeded R50 000.
“Electronic services” included certain educational services, games and games of chance, internet-based auction services, e-books, audio-visual content, still images, music and various subscription services, but excluded services such as cloud-computing and software, which are often supplied in the business-to-business (B2B) environment.
If enacted, PwC says, the amended draft regulations published this week would result in a significant overhaul of the VAT treatment electronic services.
The proposed amendments:
• Repeal the current regulation and provide for the deletion of all the specific categories of electronic services previously stated; and
• Define electronic services broadly to include “any service supplied by means of an electronic agent, electronic communication or the internet, excluding the supply of telecommunications services as defined and the supply of educational services by a person regulated by an educational authority in a foreign country”.
PwC says the definition is so broad that possibly every supply of services by means of an electronic agent, electronic communication or the internet, except for telecommunications and educational services, would fall within its ambit and could potentially require foreign suppliers to register and account for VAT to the South African Revenue Service.
PwC says the VAT Act does not distinguish between B2B supplies and supplies made directly to South African consumers. “Internationally this distinction often applies and results in a lower compliance burden on foreign business,” PwC says. It also says that the registration threshold of R50 000 in any consecutive 12-month period is, when converted to foreign currency, relatively low.
Treasury has allowed until March 22 for comments. This is an opportunity to provide input to limit the impact of these changes, PwC says.