Government's bid to have foreign digital companies register for value-added tax (VAT) kicks off in earnest next month as registrations open.
From April, the burden of paying VAT on digital services bought from offshore sites will shift from consumers to international companies. Currently, the buyer is meant to declare and pay VAT to the South African Revenue Service (SARS) on digital content purchased from international online vendors. However, this has proved to be impractical and unenforceable.
The change in the process removes what has amounted to a 14% "discount" for shoppers who choose international sites over local portals when buying digital music, books and software. The shift was first mooted in finance minister Pravin Gordhan's February 2013 budget speech and brings SA in line with international norms, while boosting the local industry.
However, there have been questions around how the taxman will ensure international companies comply with its requirement.
Anne Bardopoulos, VAT manager at Deloitte, says SARS has now provided some clarity on the issue after it asked for comments. She explains international digital vendors will register through a single, centralised unit that will be e-mail-based.
Bardopoulos notes a workshop will be held this month to "discuss any further issues that might still arise" around the registration requirement.
Quick turnaround
A designated e-mail address, to which application forms will be mailed by the vendors, will start receiving applications from 1 April and processing will start a week later, says Bardopoulos. She adds SARS has indicated that, from 7 April onwards, new applications will be processed within 72 hours.
Bardopoulos adds foreign suppliers of digital goods will not have to open, and keep, a local bank account and will also not have to appoint a South African resident VAT representative. However, suppliers will have to submit contact details of their public officer or contact person, who is delegated to answer queries or provide information that SARS may require, she says.
Once registered, international suppliers will have to register for eFiling so that they can file VAT returns electronically, and make appropriate payments through the system, adds Bardopoulos. She notes returns will have to be submitted monthly.
There is currently no indication how much this amendment will bring in for SA's coffers. Figures provided by World Wide Worx indicate the total e-commerce sector globally is worth an estimated $963 billion. This figure does not only reflect digital downloads, but all items sold over the Internet.
The local online retail sector is estimated to be worth R4.23 billion this year, an amount that has rocketed from R800 000 in 1996.
South Africans will not be able to avoid being charged VAT by creating fake addresses when registering accounts with international providers, as there are two place of supply rules that will alert international companies to the need to charge, collect and pay over VAT.
The first is if payment originates from a local bank, and the second is if the consumer is a South African resident. These rules operate independently of each other and, if either is triggered, VAT must be charged.
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