The Parliamentary Budget Office (PBO) has published a new tax brief looking at South Africa’s digital economy and possible tax policy considerations.
The PBO provides independent, objective and professional advice and analysis to parliament on matters related to the budget and other money bills.
In a briefing to parliamentary financial committees in June, the PBO said that South Africa was one of the first countries to introduce tax measures to generate revenue from consumption of commercial activities in the digital economy, which raised additional government revenue since 2014.
However, like many other developing countries South Africa has continued to lose tax revenue in the absence of specific tax measures that enable taxes to be imposed on income raised by digitalised economic activities, the PBO said.
“Given that South African corporate tax revenue as a share of revenue has declined over the years, and that more businesses have become more digitalised, it is necessary to consider taxation measures that enable revenue to be raised from digital economic activities income,” it said.
“By applying this approach, South Africa would be following recent international trends, which would not only guarantee additional needed revenue but also ensure that all business activities contribute their fair share into the fiscus.”
Apart from a digital tax on consumption and income generated by digital economic activities, South Africa could also generate additional revenue from customs duties on cross border digital economic activities, the PBO said.
It noted that the current tax regime makes provision for custom duties for non-digital cross border products and services.
The group added that online global imports and exports have grown faster than physical imports over the last decade, however this is restricted by a World Trade Organisation (WTO) moratorium that has been in place since 1998.
“The revenue losses of Sub-Saharan Africa are expected to range between $600 million and $2.6 billion (R10.8 billion and R46.8 billion) annually in potential custom duties due to the WTO moratorium,” the PBO said.
“South Africa is estimated to have lost between $25 million (R475 million) and $37 million (R700 million) in potential custom duties revenue as a result of the WTO Moratorium.
“Unsurprisingly, South Africa and India have raised concerns about the fiscal impact of the 1998 WTO Moratorium over the years, and the duo submitted a proposal to end the WTO Moratorium in March 2020,” it said.
Move to a country-specific approach?
The PBO said that the Organisation for Economic Co-operation and Development (OECD) is now driving a global effort to reform international tax laws to ensure that digital economic activities are taxed.
However, it noted that many developing countries doubt that it will address their concerns. As a result, many countries have opted for unilateral policy measures, it said.
“Multiple international experiences on the part of both developed and developing countries having been proposed, while others have implemented unilateral taxation policy measures to enable the taxing of cross border digital economic activities.
“In conclusion, South Africa can learn from these countries when considering a unilateral approach to taxing digitalised commercial activity within the national economy.”
You can read the full presentation below.