Concerns raised over proposed e-services VAT amendments
Various concerns about the impact of the latest proposed amendments to the Value Added Tax (VAT) Act, which prescribe what qualifies as electronic services for VAT purposes, have been raised in Parliament and in submissions to legislators.
The latest definition of electronic services is so wide that possibly every supply of services by way of "the internet, an electronic agent or electronic communication" could be caught in the net.
Charles de Wet, head of indirect taxes at PwC, says there is also concern about the low threshold of R50,000 for foreign companies to register for VAT in SA. Local companies are required to register for VAT only when their taxable turnover exceeds R1m.
The Davis tax committee says in its final report on VAT it sees no justification for the very low registration threshold (R50,000) applicable to suppliers of electronic services.
E-services caught in the net
De Wet says e-services that may now be caught in the rules if the proposed amendments are signed into law include advertising and software services, broadcasting, website and website hosting services, and professional services provided over the internet or via e-mail such as legal services. He says SA is not following the recommendations of the Davis tax committee or the Organisation for Economic Co-operation and Development (OECD) guidelines.
The Davis tax committee says the OECD has been at the forefront of researching e-commerce. During its global forum on VAT in 2014, governments of 86 countries endorsed a new set of guidelines for the application of VAT on international trade.
However, SA adopted its own rules on the taxation of the supply of electronic services from outside SA during the same year.
Victor Terblanche, chairman of the VAT working group of the South African Institute of Tax Professionals, says there may be instances of double taxation of services in foreign and local jurisdictions given the wide definition of electronic services.
The Davis committee recommends SA follows the route taken by Canada, which provides for categories of services. The EU has also moved from an "exhaustive list" to categories.
"Furthermore, as far as electronic commerce is concerned, given its cross-border nature, South Africa should avoid implementing rules and provisions which are not harmonised with international principles," the committee warns.
The committee stresses the importance of SA adhering to the OECD’s principles, especially the principle of neutrality.
The effective date for the implementation of these far-reaching amendments is October 1.