Revenue Service says e-music is a taxing business

It’s not just global music stars: tax agencies are also grappling with how to get revenue from these offshore electronic service providers.

There are currently more than 250 electronic service providers registered with the South African Revenue Service, which said revised regulations, expected to come into effect in April 2019, would broaden the scope of electronic services.

“This will increase the valueadded tax base of electronic service suppliers, in that most offshore electronic services suppliers will be required to register for VAT where the total value of electronic services supplied in South Africa exceeds R1-million per annum,” Sars said.

Sars charges VAT on the operations of foreign electronic service providers that provide services that exceed R50 000 a year. These businesses also need to meet two of the following conditions: providing services to South African residents; the recipient must have an address in the country; and payment for the service should be from a South African bank account.

Sars said determining income tax for digital companies posed unique challenges because most of these companies were not tax residents of South Africa, in that they were not incorporated or had their place of management in the country.

Discussions are taking place globally on how to best to tax the digitalised economy. The Organisation for Economic Co-operation and Development and the G20 Inclusive Framework published an interim report earlier this year on the challenges that have come with taxing companies in a digital era.

Sars said it was monitoring the work of these organisations.

“It is anticipated that, upon publication of a final version of the report, expected by 2020, South Africa will be in a position to adopt some of the report’s recommendations,” Sars said. — Tebogo Tshwane