SA eyes VAT on e-books, apps, games

2014-01-31 11:00
Money. (Duncan Alfreds, News24)

Money. (Duncan Alfreds, News24)

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Cape Town - The South African government intends taxing digital products and services that have so far evaded VAT.

On Friday, the department published a document calling for public comment for its proposed regulation of digital services.

"The net result is that the local consumers can buy imported digital products without paying VAT. This outcome not only places local suppliers of digital services at a competitive disadvantage (compared to suppliers from abroad) but also results in a loss of revenue for the fiscus," the document says.

The implication of such regulation could mean that international digital vendors would have to register to pay VAT and that cost would be passed on to the consumer.

Regulation of the digital economy has also been used as a proxy to tax the informal economy.

'Short-sighted'

The explosive growth of digital currency M-Pesa in Kenya has motivated that country's government to investigate taxing transactions as a way to generate revenue for the state.

In the US, some have also argued that Bitcoin, the digital online currency, be subject to regulation amid concerns about money laundering and drug trafficking.

"There's a misunderstanding or misperception of the part of many policymakers. When they discuss mobile penetration, there's this idea that mobile penetration has reached 60%, 70% 80% - 90% in some countries therefore the work needed to stimulate growth is finished at now the focus should be on milking the industry for tax revenues and what not," Peter Lyons, director of Public Policy Africa Middle East at the GSM Association told News24.

He added that governments were short-sighted if they considered the digital economy as an easy way to extract money from consumers.

"Governments and those within governments who have an interest in positioning themselves between the mobile sector and the economy - we will see more of this kind of discussion; in some countries there's a kind of nostalgia for the days of telecom monopolies."

Data produced by the World Bank showed that there was a correlation between the growth of mobile penetration and the economy.

It estimated that for every 10% increase in mobile penetration, there is a corresponding 0.8% increase in gross domestic product (GDP).

Rewards

"Mobile communications offer major opportunities to advance human and economic development - from providing basic access to health information to making cash payments, spurring job creation, and stimulating citizen involvement in democratic processes," said World Bank vice president for Sustainable Development Rachel Kyte.

Lyons said that policymakers were often more focused on short term rewards rather than long term sustainability.

"To address the political reality you have to offer some kind of viable alternative and for many policymakers, they see the mobile sector as a proxy to tax the informal economy.

"Obviously this is a very short-sighted view, but there has to be some kind of alternative that you can present to them - not necessarily over the near term; maybe two to three years," he said.

Beyond the sale of apps and music online, the regulations also aim to tax online gaming services, including gambling.

In practical terms, it means that South Africans who buy an e-book from Amazon may have to pay VAT on that purchase, though how this would be enforced is not clear if the vendor doesn't register with Sars.

The public can comment until 20 February and the department anticipates that the legislation will come into effect on 1 April 2014.

- Click here if you would like to send the department a comment on the proposed regulations.

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