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The Parliamentary Budget Office (PBO) has detailed a possible digital tax on consumption and income generated by digital economic activities and cross-border activities.
This was part of a pre-presentation to Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement next week.
The PBO, which provides independent, objective and professional advice and analysis to parliament, said the digital tax is gaining international attention.
“Global discourses to rethink the allocation of tax rights have intensified. South Africa taxes consumption through VAT, but not income from digital economic activities, ”he said.
This is not the first time that the PBO has promoted a digital tax, noting that in 2014 South Africa was one of the first countries to introduce tax measures on the consumption of digital products through VAT.
However, South Africa has continued to lose income because it does not have measures to tax the income generated by digitized economic activities.
“As South Africa’s corporate tax revenue as part of revenue has declined over the years, and as more businesses have become more digitized, there is a need to consider tax measures that allow revenue to be derived from digital economic activities.” , He said. .
“By applying this approach, South Africa would be following recent international trends, which would not only guarantee the necessary additional revenue, but also ensure that all business activities contribute their fair share to the fiscus.
The PBO said South Africa could also generate additional revenue from customs duties on cross-border digital economic activities.
He noted that the current tax regime only provides customs duties for non-digital cross-border products and services.
The group added that global online imports and exports have grown faster than physical imports over the past decade.
However, taxes on global online imports are restricted by a World Trade Organization (WTO) moratorium that has been in effect since 1998.
“Sub-Saharan Africa’s revenue losses are expected to range between $ 600 million and $ 2.6 billion (R10.8 billion and R46.8 billion) annually in potential customs duties due to the WTO moratorium,” said the PBO.
“It is estimated that South Africa has lost between $ 25 million (R475 million) and $ 37 million (R700 million) in potential revenue from customs duties as a result of the WTO Moratorium.”
“Unsurprisingly, South Africa and India have raised concerns about the fiscal impact of the 1998 WTO Moratorium over the years, and the duo put forward a proposal to end the WTO Moratorium in March. 2020, “he said.
Digital tax preparation in South Africa
Deloitte recently published information on digital taxes in Africa who said it would not be surprising if the South African government explored the introduction of a direct digital tax.
South Africa was one of the first African countries to add digital services to its indirect tax (VAT) network. To date, developments on the direct tax front have been left on the back burner.
However, this has changed and tax revenue collection is expected to decline significantly due to the pandemic and the COVID-19 shutdown.
“In this regard, most of the groundwork has already been covered by the Davis Tax Committee (DTC) which released its final report in 2016,” Deloitte said.
The DTC recognized the balance to be struck between the implementation of a digital tax and unique economic circumstances and economic policies that aim to encourage foreign direct investment to foster economic growth.
The DTC recommended that South Africa should expand its current source rules to include a provision that the source of income from the supply of digital goods or services is where the payer of the digital goods or services is located.
Framing the rule of origin based on the location of the payer, would include digital transactions net of South African tax in terms of what goods and services are delivered in South Africa but the payment is made electronically to a non-resident.
Republished with permission of BusinessTech.
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