From April, local digital service providers will find themselves with a - theoretically - leveller playing field as the state will start getting international companies, like Amazon, to collect and pay over value-added tax (VAT).
No-one has a clear idea of just how much has been leaking out of the fiscus each year, least of all the taxman.
Currently, people who buy digital items are meant to declare the VAT to the taxman and pay it over. But hey, let's be frank, no one does this, apart from businesses that want to keep their noses clean. That's why the law is changing.
Foreign businesses supplying e-books, music and other digital services in SA will all have to register as VAT vendors, as National Treasury seeks to bring cross-border e-commerce into the VAT regime.
The move has been welcomed because local companies ? like those selling software that can be downloaded ? have to collect and pay over the VAT if they turn over more than R1 million a year. Because the international companies haven't had that burden, they are effectively able to offer a 14% discount, or add 14% to their bottom line.
Short-sighted
Yet, here's the trick: the state will have to effectively police the Internet. Excuse me while I hose myself quietly.
To prevent local consumers from going around the new law, two "triggers" have been set up. If payment originates from a local bank, or the consumer is a South African resident, the digital company will be alerted to the need to charge VAT.
Sure, these rules are in place, but these only affect the consumer. The South African Revenue Service is not going to have any jurisdiction over a small company on a little island somewhere, and won't be able to force it to collect and pay over VAT - although the big players will comply with the paperwork to protect their name.
Companies that ignore the requirement are going to be able to happily carry on their trade, as it's not like the state can take down their Web sites, and it's unlikely it will be able to block transactions either. All they need do is set up a new banking account.
And consumers will doubtless shop where they can get the best price.
Look elsewhere
This law is going to be nigh impossible to enforce. And I don't think it's actually worth it, although I do sympathise with our e-commerce sector, which does need a helping hand.
No-one has a clear idea of just how much has been leaking out of the fiscus each year, least of all the taxman, but I think it's possible to hazard a guess.
According to World Wide Worx, the local e-commerce sector is worth about R4.23 billion. Let's assume that around 20% of that goes to offshore accounts, that's R846 million. VAT on that amount is a mere R118 million.
Why, government wastes far more than that every single minute. So, we've created a law, that we will battle to enforce, just for R118 million. Well done.
According to some calculations done by a writer on Times Live, last year's R30 billion in fruitless, wasteful and irregular spending is akin to throwing away R1 000 a second. That makes any benefit from digital tax pale in comparison.
What the state should be doing to boost its revenue pool is stop money leaking out of it by ensuring better governance, not new laws. Instead of clamping down on international digital content, it should be doing something to boost the local e-commerce sector, like eliminating VAT on items that can be used for education, like books.
This will serve three purposes: skill up our youth - who are the future of the country - by providing knowledge; bring more people into the digital age, and spur on an entire subsection of the economy.
That sounds like a much better plan to me.
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