2. Agenda
• Stats on ecommerce
• Background information on howVAT was introduced
• Definition of ecommerce
• SAVAT Legislation
• Supply, place of supply
• VAT registration
• Current Position
• DavisTax Committee Recommendations
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3. Some experts are of the view that
local e-commerce sales are set to top
R9 billion in 2016.
Total number of online shoppers in SA at
the end of 2014 amounted to 3.225
million.
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Introduction
5. Background information
• In September 1991, South Africa replaced its General SalesTax (also known as GST) with a
consumption-type value added tax (VAT)
• The South AfricanVAT system resembles the New Zealand model , as the South African
VAT Act was based on the principles of the New Zealand GST system. SouthAfrica,
however, did not include place of supply rules in itsVAT legislation whenVAT was
introduced in 1991.
• The difference betweenVAT and the previous General SalesTax in South Africa is that the
latter is levied against a consumer and not against an intermediate stage entity, whereas
withVAT, everyone along the value chain paysVAT. Moreover,VAT is the value that is
added to goods and services on consumption
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6. Definition of e-commerce
• Definition of e-commerce: it is difficult to define e-commerce transactions in one
definition or model, as there are so many different components to it and all the models
included different e-commerce types, activities and capabilities.
• OECD defines ecommerce as “An electronic transaction is the sale or purchase of goods
or services, whether between businesses, households, individuals, governments, and
other public or private organisations, conducted over computer mediated networks.
The goods and services are ordered over those networks, but the payment and the
ultimate delivery of the good or service may be conducted on or off-line” generally as
commercial transactions that take place over or in electronic networks, where two
parties (in the context of business-to-business (B2B), business-to government (B2G) or
business-to-consumer (B2C)) trade in tangible or intangible products online.
• E-commerce can be defined as use of the internet to conduct one aspect of a
commercial transaction and can include transactions where all aspects of the exchange
occurred over the internet.
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7. SAVAT Legislation
• Under the currentVAT legislation, South Africans are liable forVAT on imported
ecommerce transactions. Digital products, which are not intended to be used for the
making of taxable supplies in South Africa, acquired from a foreign supplier, who is
not aVAT registered supplier in South Africa, will be subject toVAT in South Africa
under the currentVAT legislation. (7(1)(c) of theVAT Act)
• The recipient of the service or digital product is obliged to account for theVAT on the
transaction by paying theVAT to SARS within 30 days of receiving the invoice from
the supplier or paying for the product or service. SARS is therefore reliant on the
honesty of the taxpayer to declare and remit theVAT.
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8. In practise
• In practice, the foreign supplier must complete aVAT
registration application formVAT 101, which must be
submitted together with certain required documentation.
• The application form and documents can be
submitted via electronic mail to SARS for processing.The
foreign supplier is not required to open a South African bank
account, and the appointment of South African resident
representative vendor is also not required.
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10. Supply of goods or services
• Although theVAT Act does not provide for variableVAT rates
for the supply of different types of services, the place of supply
of services and electronic services differ .
• As a result, uncertainty exists as to the treatment of services
that are capable of being delivered electronically but that are
not specifically provided for in the Regulations. For example,
there is no clear distinction between telecommunication
services and electronic services. Some overlap is possible.
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11. Place of supply
• Foreign businesses that supply “electronic services” are
required to register and account forVAT in South Africa if their
taxable turnover exceeds a specified registration threshold.
• a foreign supplier of e-commerce services to a recipient that is
resident to South Africa, or where payment originates from a
bank registered in South Africa, must register asVAT vendor
under theVAT Act. However, this would only be the case
where the taxable supplies, that is the supply of electronic
services to South African residents, exceeds the annual
threshold of R50 000.
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12. Is the supply made in the course or
furtherance of an enterprise?
• In the case of imported services in terms of the use and-
consumption principle, the recipient vendor of imported services
has to account only forVAT on the imported services that are not
applied by the recipient in the course and furtherance of an
enterprise.
• However, some of the items listed in the Regulations are generally
utilised by businesses in the making of taxable supplies.As a result,
confusion arises as to whether the duty to levyVAT on B2B
transactions for the services so listed would be shifted to the
business recipient resident in South Africa when that business
makes further taxable supplies.
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13. VAT Registration
• The South AfricanVAT registration system does not provide
for a simplified registration process for suppliers of cross-
border intangibles.Vendors must, amongst other
requirements, have a fixed establishment with a physical
presence in the Republic.The current vendor registration
regime is inconsistent with the simplified registration
proposal.
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14. Current position: SA Businesses v International Companies
• MostVAT systems, including that of South Africa, are based on the
principle of consumption. Consequently, the person who consumes
the goods and services is the person who ultimately carries the
burden of paying the tax due on them.
• ThusVAT is levied on goods and services that are utilised and
consumed within the borders of the Republic, irrespective of the
taxpayer’s residence status.
• International companies such as those mentioned above do not
usually have a tax presence in South Africa and therefore cannot be
taxed due to our current legislation.
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15. DavisTax Committee Recommendations
• SA needs to categorize supplies that fall under electronic services and follow what Canada
and the EU have done. Furthermore an interpretation note or guide could be useful in this
regard. But if an exhaustive list is compiled by the requisite drafters of the law, the list
should be subject to review constantly.
• It is recommended that the administrative burden on foreign suppliers of electronic services,
who do not otherwise have a presence in South Africa but who satisfy the compulsory
requirements to register forVAT, need to be reviewed and reconsidered to ensure that the
amendments addressing electronically supplied services are effectively and efficiently
imposed and enforced.The administrative burden imposed on foreign suppliers of electronic
services should minimise the administrative costs for both the taxpayer and SARS as far as
possible.
• There are concerns that theVAT amendments with respect to e-commerce do not comply
with the principle of neutrality which requires that taxation should seek to be neutral and
equitable between forms of commerce. Business decisions should be motivated by
economic rather than tax considerations.Taxpayers in similar situations, carrying out similar
transactions, should be subject to similar levels of taxation.
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16. CONCLUSION
• As seen above many online services are supplied from outside
South Africa, serious consideration needs to be given to
updating the current tax regime to ensure it remains relevant
in the digital age and the rapidly developing online market
place.
• The broadening of the current legislation to include software
services as proposed by the Finance Minister in 2015
represents a step to protect the South African tax base and to
ensure that local businesses and foreign suppliers are being
treated equally.
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