A new South African tax on Netflix and other online services could see prices increase

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Netflix

It may not be cheap, but for the majority of what’s available, South Africans have a pretty good market for online subscriptions to a wide variety of media. Spotify is a brilliant platform for the best music around, Netflix continues to make regular TV feel like a lumbering dinosaur that has tripped into a tar pit and the Xbox Game Pass service is a value for money gaming buffet.

Not cheap, but plenty affordable for most households that want to grab a subscription. Well, mostly affordable as the National Treasury is looking to introduce a new regulation that would force international services to evaluate what they offer and reclassify themselves as an electronic service. The takeaway here, is that doing so will mean that these companies will have to register for VAT in South Africa, which likely means that consumers will be paying extra at the end of the day for their subscription of choice.

“What is envisaged by the definition is that the services being supplied are essentially automated and involve minimal human intervention and are impossible to ensure in the absence of information technology,” VAT expert Seelan Moonsamy from multinational law firm Baker & McKenzie said to BusinessTech.

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

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

  • Software subscription services;
  • The use of software by an entity in South Africa provided electronically by its holding company situated abroad (unless the exclusion applies);
  • Broadcasting;
  • Cloud computing;
  • Advertising services;
  • Gaming;
  • Any reservation services made via an online platform, etc.

“If these companies deliver its services by electronic means and the total value of its services exceed R1 million on a rolling 12 month period they will have to register,” Moonsamy  added.

The customer would ultimately bear the value-added tax in the form of higher prices as VAT is – in economic parlance – a consumption tax. I imagine that behemoths like Amazon and Google would still remain very competitive based on their ability to price discount, so their likely VAT registration for electronic services would not have any major impact on their ability to attract customers and their revenues.

The newly amended regulation will go live next year on April 1, and is unfortunately not a scheduled April Fool’s joke.

Last Updated: November 29, 2018

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