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Online streaming should be taxed: PwC

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 26 May 2015
South African companies are being hurt by the lack of a digital tax, says PricewaterhouseCoopers.
South African companies are being hurt by the lack of a digital tax, says PricewaterhouseCoopers.

Multinational companies that stream content to local users are not being taxed, to the detriment of South Africans, says PricewaterhouseCoopers (PwC).

The content streaming market has exploded, with countless service providers such as Netflix, DSTV BoxOffice, Hulu, Node, HBO Go, MTN FrontRow, Vidi and Amazon Prime Instant Video, as well as online magazines, news and newspaper providers becoming household brands in South Africa.

The popularity of these services with Internet users continues to gain traction, even though many do not officially supply services to SA, notes the accounting firm. It says South Africans access these offerings through location masking virtual private networks.

PwC says international providers do not have to comply with the same tax rules as their local counterparts and, in some instances, are not taxed.

"We are living in an era of unprecedented digital change. South Africa's tax laws are outdated and have not kept pace with the growth of the digital economy," says Charles de Wet, head of indirect tax at PwC Africa. "Digital giants should be held accountable and pay their fair share of South African taxes."

South Africa only imposes a digital tax through VAT on services bought online such as items purchased from Amazon. That dispensation kicked in on 1 June last year. PwC notes, while it seek to create equality between local and foreign electronic service providers, the legislation remains narrow and there continues to be an unfair advantage in some areas.

De Wet notes this law, which can be bypassed by South Africans who provide inaccurate details to foreign suppliers, is "also not broad enough to encompass the relentlessly developing digital landscape".

PwC says, because international companies are not taxed at the same rate as their local counterparts, South African suppliers are feeling an economic pinch as they pay value-added tax as well as corporate tax of 28%.

"This further increases the gap between domestic and foreign players in the online media industry and has a negative impact on revenues collected to finance necessary public services for South African residents," adds De Wet.

According to the Organisation for Economic Cooperation and Development (OECD), revenue authorities have an important role to play to realise the full potential of electronic services. The OECD suggests it is necessary to provide a fiscal environment within which electronic services can flourish, while still monitoring its influence and impact on the economy.

The OECD, as part of the Base Erosion Profit Shifting debate, has come up with a so-called 'Action 1' to address the tax challenges of the digital economy which seeks to align taxation with economic activities and value creation, says PwC.

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