Big E-commerce VAT Change in South Africa
The South African National Treasury and SARS are considering changes to the VAT (Value-Added Tax) system, especially concerning electronic services from overseas. This change primarily targets how VAT is handled for cross-border electronic services.
Background:
Pre-2014: VAT on foreign electronic services was poorly collected due to low compliance.
Post-2014: South Africa revised its VAT mechanism to make foreign providers collect VAT, leveling the playing field.
2019 Update: The VAT rules were expanded to cover more foreign electronic service providers, aiming to maximize VAT collection for both business-to-business (B2B) and business-to-consumer (B2C) transactions.
Despite these efforts, many international suppliers either complied late or were unaware of their VAT obligations, leading to penalties.
Proposed Changes:
In the 2024 National Budget, the Finance Minister proposed updates to the Electronic Services Regulations and VAT Act. The main idea is to simplify the rules:
The focus will be on non-resident suppliers providing services directly to end consumers (B2C).
This means only suppliers dealing directly with South African consumers would need to register for VAT, not those providing B2B services.
Implications
Suppliers who had to register under the 2019 rules but wouldn’t have under the proposed changes may need to deregister.
B2B suppliers who faced penalties under the 2019 rules may see some relief but will incur costs to adapt their systems.
The IT industry supports the change, as it would simplify compliance and encourage more foreign businesses to operate in South Africa.
While these changes are still proposals, they are expected to be detailed in the draft tax laws amendment bill in July 2024.