Why digital tax is good for South Africa

·10 Feb 2014

Legal expert Graham Gilfillan welcomed the South African government’s new electronic services regulations which will introduce 14% VAT on digital products and services from 1 April 2014.

The regulations have been published by finance minister Pravin Gordhan for comment, and follow the proposals he made in his 2013 budget speech to impose VAT on foreign businesses who “sell e-books, music and other digital goods and services”.

According to Gilfillan the new digital tax is a very good thing. He explained that money from digital purchases often leave the country without any benefit to South Africa’s economy.

“Since when is not paying tax okay,” asked Gilfillan. “This issue of not paying tax on consumer goods is out. It is hurting our economy terribly.”

“This is really targeted at the foreign e-sellers, who are killing South African jobs, who are killing South African businesses, because what do they contribute to the economy?”

According to Gilfillan, foreign online shopping has been hurting South Africa, and it is not only about tax.

“Imagine all the South African authors, musicians and software programmers – how do they get their money back?” asked Gilfillan.

Increase in money in economy

Gilfillan said that the new digital tax will definitely have a “massive” positive effect on the local economy.

He said that many people may be using Netflix or Hulu at the expense of local operations like DStv.

The money flows out of the country without any benefits for local artists or content products, said Gilfillan, adding that no royalties are flowing back into the country.

Gilfillan said that it is unfair for a foreign content provider to offer products without any tax, undercutting local businesses which have to charge VAT on their products.