1. Foreign e-content providers now required to be VAT registered
In terms of the VAT Act it is arguable whether foreign suppliers of e-commerce services to South African customers are required to register for VAT purposes. This is especially so considering that they transact via the internet and have no physical place of business in South Africa. The amendment introduces a place of supply rule into the VAT Act which requires foreign suppliers of e-commerce services to register for VAT purposes in South Africa. This amendment will ensure equal VAT treatment of foreign and local e-commerce suppliers. E-commerce suppliers will be allowed to account for VAT on a cash basis.
Two legislative observations regarding the proposed amendment to the VAT Act include that:
- consideration should be given to remove the limitation to non-Residents of the new inclusion in the definition of “enterprise”; and
- allowing for accounting for VAT on the cash basis may not create the envisaged benefit as most of these transactions and payment would presumably occur instantaneously.
The monetary effect of the proposed amendment on the fiscus may not have been determined but it is envisaged that the successful implementation of the proposal would yield substantially for the fiscus. The challenge of successful implementation would of-course rest with SARS’ and National Treasury’s persuasive talents in getting the big players in these services registered for VAT. They may revert to cooperation agreements with Revenue authorities elsewhere. The proposal is partly in response to the almost unenforceable reverse charging or VAT on imported services to which recipients of these services in South Africa are subject. In theory the reverse charge mechanism (as applied in South Africa) is the ideal mechanism to collect VAT from (especially) private consumers on services consumed in South Africa, but in practice the tax is mostly not collected, leaving a gap in the fiscal coffers and creating disparity between foreign and local suppliers of these services. This step apparently also follows countries such as Norway and Switzerland, whereas Australia and various other countries have made strong progress in addressing this very issue.
2. The VAT registration process to be streamlined
The amendment obliges businesses to register for VAT purposes where
- their taxable supplies exceeds R1 million (in 12 months); and
- their taxable turnover will exceed the threshold in a future period of 12 months due to a contractual commitment in writing to make those supplies. This amendment removes the predictive element for compulsory VAT registration.
- The amendment also simplifies voluntary VAT registration for small and medium businesses and large businesses with large capital investments. The amendment proposes that voluntary registration be dealt with in a two-pronged approach, namely:
- Traditional VAT registration; and
- Fast-tracked VAT registration.
Traditional VAT registration will allow municipalities, welfare organisations, foreign donor-funded projects, etc. to register with no threshold test. Other entities wanting to register under this approach such as mining, forestry, and warehousing, must expend at least R5 million. Vendors will be allowed to can claim refunds in respect of expenses incurred.
Fast-tracked VAT registration will also allow persons to register with no threshold test but refunds will be blocked until that person reaches R100 000 taxable supplies in a continuous 12 month period