The Davis Tax Committee (DTC) has missed some critical gaps in the application of VAT in ecommerce which will see continued loss of billions of rands if not tackled.
For example, the area of traders who use complicated means to hide their identities and dodge VAT remains un-tackled.
This is a takeout from the assessment of the DTC’s First Interim Report on VAT undertaken by global consulting firm PwC.
The firm said in a statement more work is required in ecommerce space to ensure that the law keeps pace with technological developments.
Charles de Wet, Head of Indirect Tax at PwC Africa, said while the recommendations made by the DTC in the interim report are welcomed, certain practical issues currently being experienced in the electronic commerce space are not dealt with in the interim report and need further consideration.
For example, said De Wet, the existing legislation seeks to tax those foreign entities who satisfy two of the necessary criteria which generally include making supplies to recipients in South Africa, and receiving payment from a local bank account.
However the the legislation does not impose VAT on those foreign suppliers who are able to circumvent these requirements via some complicated means. Examples include making services available through Virtual Private Network (VPN) services which serve to hide the true identity of a South African recipient, or who receive payment by way of gift cards and other means which cannot be traced back to a South African bank account.
De Wet said “As technology evolves, these issues should be given more attention to ensure that these supplies are also included with the scope. A failure to remain current may see South Africa’s work in taxing electronic services space becomes impeded.”
De Wit did commend the DTC saying “We welcome the recommendations by the DTC on electronic services, and agree that legislation should keep pace with the technological developments in the field”.