The new South African tax on Netflix and other on-line services could see price increases – a critical hit

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It does not have to be cheap, but for most of what is available, South Africans have a fairly good online subscription market for a wide range of media. Spotify is a great platform for the best music in the neighborhood, Netflix continues on a regular TV studio as a wooden dinosaur who gets involved in the tar pitch and the Xbox Game Pass is priced for money.

It's not cheap, but much affordable for most households who want to grab a subscription. Well, mostly affordable because the Treasury is trying to introduce a new regulation that would force international services to evaluate what they are offering and to reclassify it as an electronic service. It also means that this will mean that these companies will have to register for VAT in South Africa, which probably means that consumers will pay extra late at the end of the day to select them.

"What is said is that the services provided are essentially automated and involve minimal human intervention and can not be secured without information technology," said Seelan Moonsamy, a VAT expert, from Baker & McKenzie, a multinational law firm, BusinessTech.

Only a limited number of services that can be provided by the above means are excluded from the definition of electronic services, namely educational services regulated in the exporting country of a foreign service provider and telecommunications services.

What about what could be reclassified as an electronic service? Pretty much everything with an online component:

  • Software subscription services;
  • The use of the software by an entity in South Africa has been provided electronically by its foreign-holding holding company (unless the exemption is applicable);
  • Broadcasting;
  • Cloud computing;
  • Advertising services;
  • Games;
  • Any reservation services made via an online platform,

"If these companies provide their services electronically and the total value of their services exceeds R1 million over 12 months, they will have to register," Moonsamy added.

The customer would eventually bear the value added tax in the form of higher prices, because VAT is – in economic terms – excise duty. I believe that behemoths like Amazon and Google would still remain very competitive on the basis of their ability to discount prices, so their likely VAT registration for electronic services would have no significant impact on their ability to attract customers and their revenues.

The newly amended regulation will come into effect next year on April 1 and unfortunately it is not the planned joke of April Fool.

Last Updated: November 29, 2018

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