The question of how the increasingly digital economy will be taxed is under discussion by revenue authorities, multinational entities and advisory bodies alike around the world. There is no consensus on how this will be done — not even at the level of the Organisation for Economic Co-operation and Development , which is trying to lead global discussion on this subject.
Both of these models are well understood when they relate to physical goods and services. But in the realm of digital services, it is more complex. Digital services often result in consumers in one country receiving a product or service without the supplier of that product or service being physically present in the country.
Electronic services are now defined as “any services supplied by means of an electronic agent, electronic communication or the internet for any consideration”. Foreign suppliers of electronic services to South African recipients will be required to register as VAT vendors if they meet certain requirements. This will increase the administrative burden on foreign companies and could also have the effect of increasing the final price that consumers will pay for these services.
In February, the OECD released a report, Addressing the Tax Challenges of the Digitalisation of the Economy. In March it held a public consultation in Paris on possible solutions to the tax problems facing the digital economy. For example, the value of digital services provided into African countries is generally greater than the value of digital services provided out of African countries. Accordingly, there may be a tendency for countries in Africa to seek to use this G20/OECD project to implement protectionist measures.
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