South Africa: Further news about the planned VAT taxation of eservices (B2B and B2C)

As reported there is new draft VAT legislation in South Africa, which is planned to be implemented in early 2014, which targets electronically supplied services provided by foreign (non-established) business to customers located in South Africa.

Whilst most of us are familiar with the rules and administrative practices which operate within the EU and Switzerland/Norway regarding the supply of such services by non-established businesses to private customers (B2C), it is important to recognize that South African VAT legislation does not currently distinguish as between B2B supplies and B2C supplies and refers generically to “imported services”. Thus whilst the intended “target” may well be the B2C sector it appears that the B2B sector may be equally impacted due to the absence of the distinction referred to above.

First impressions and next steps

Charles de Wet, leader of the PwC South Africa Indirect tax practice, has met with Ms Lesley o’Connell, Head of VAT Policy at the South Africa Revenue Service (‘SARS’) to have a general discussion in relation to the proposed legislation. During the course of the meeting SARS conceded that there are challenges with the drafting of the proposed legislation but insisted that they would proceed with the proposed amendments as they perceive a major problem with the non-taxation of the spending by South African on services/digitized goods supplied via the internet by non-established businesses.

SARS and National Treasury (‘NT’) have indicated that they are prepared to work with likely effected service providers so as to minimize disruption and compliance issues and in this regard they have indicated that they are prepared to attend presentations from business (or their advisers). Subsequent to the meeting SARS had a discussion with National Treasury & they have agreed to meet with PwC South Africa again on 22 or 23 August 2013.

They have further indicated that whilst they are aware of the B2B/B2C distinction in Europe they do not plan to draft the current legislation to accommodate this as primary VAT legislation in South Africa does not provide for such a distinction. However they have indicated that they would be open to suggestions from business, in particular in relation to defining the nature of the services to be targeted, as to how the net effect might be to target what are generally B2C services. It is important at that meeting we make proposals as to how SARS might tax supplies of this nature and not just demonstrate why the current proposals do not work.

What does this mean for you?

For the next few days or so there is a very useful window of opportunity available to ebusinesses to either make a direct presentation as part of the PwC presentation, or have PwC South Africa make one on your behalf, to SARS with a view to influencing the direction of the proposed legislation. This presentation may be either on an individual business basis or a sectorial approach.

Perhaps you might consider this issue if you believe that you may be effected by the proposed legislation. We would hope that you will contact us over the coming days to discuss this opportunity.

For more information please contact Charles de Wet or Amit Bubna from PwC South Africa.