Johannesburg - Treasury must more closely examine taxing foreign suppliers of electronic services to help South Africa expand its tax base, says accounting firm PricewaterhouseCoopers (PwC).
Tax officials across the globe are increasingly turning their attention to foreign e-services.
Internet accommodation service Airbnb last week inked its first tax deal in Italian city Florence which is expected to generate $11m in revenue. Australia’s New South Wales government is also developing a regulatory framework for Airbnb while Denmark is exploring regulation.
Meanwhile, Facebook said last month that it would declare advertising revenue from its British clients in Britain instead of Ireland, where it has its European headquarters. This means that Facebook will pay more tax as a result.
And PwC says South Africa’s government needs to start looking closely at global tech giants selling services on local shores.
“While the Minister did make a positive attempt to expand the tax base by introducing a sugar tax and tyre tax, these are unlikely to be large scale revenue earners and more could have been done to broaden South Africa’s tax base and to protect and foster local South African industry in the face of rising competition from global companies,” said PwC in a statement earlier this week.
“Examples of opportunities that were missed include levying corporate income tax on foreign suppliers of electronic services which currently do not pay South African income tax, unlike local entities,” said PwC in its statement.
PwC further says that another missed opportunity involves introducing value added tax (VAT) on electronic advertising services supplied from offshore.
This market is forecast to reach R4.4bn by 2018, according to PwC’s Entertainment and Media Outlook Report, 2014–2018.
“Currently, electronic advertising supplied from foreign entities is not subject to VAT or corporate income tax and leaves the South African industry at a disadvantage,”PwC added.
Sharing economic services like Airbnb and Uber and social media platforms Facebook, Google and Twitter are increasingly required to pay tax in the countries where they offer their services. Do you think it’s time for the tax tide to turn in SA? Send us your views now by clicking here.
Charles de Wet, Head of Indirect Tax for PwC Africa, further said that such measures could “present an opportunity to better protect local industry against larger multinationals by ensuring a more level playing field.”
“There should be continuous efforts to ensure effective implementation and collection of consumption taxes and while South Africa has made significant strides by expanding the scope of VAT to cover certain electronic supplies made by foreign suppliers, other opportunities to further broaden the tax base and protect local industry exist,” said de Wet.
PwC said that despite South Africa’s current legislation on electronic services supplied by foreigners being just under two years old, these laws risk being “dated” owing to rapid technological developments.
“While it was stated in the 2015 Budget Review that the provisions governing electronic services in South Africa would be broadened to include the supply of other services (e.g. software), National Treasury did not take the opportunity to provide further details on this change and other developments which could further broaden the base,” said PwC regarding the budget.