Do South Africa’s e-commerce VAT rules measure up to international trends and OECD guidelines?

Abstract

Orientation: The taxability of e-commerce transactions have been the subject of many studies to protect governments from Value-Added Tax (VAT) erosion, illegal recovery and fraud.

Research purpose: This study critically analyses the challenges posed by e-commerce transactions in South Africa’s VAT Act. Recommendations are made for amendments to the VAT Act to improve rules to effectively tax e-commerce transactions occurring in South Africa.

Motivation for the study: Globally, including in South Africa, enforcing relevant VAT legislation to target output tax collections and input tax credits from e-commerce transactions aptly remains a challenge.

Research approach/design and method: By integrating qualitative literature reviews and comparative synthesis, this study employed a comparative legal methodology. VAT levied on e-commerce transactions in South Africa is compared to the Organisation for Economic Co-operation and Development’s guidelines as well as New Zealand’s and Australia’s Goods and Services Tax legislations.

Main Findings: While the South African VAT Act aligns with international best practices on the use of intermediaries, there are some differences as detailed in the study.

Practical/managerial implications: To align with international trade counterparts, the South African VAT Act should differentiate between business-to-business and business-to-consumer sales. A provision concerning the place of consumption for bundled goods should be included in the VAT Act. The VAT Act should contain a provision that allows bad debts to be claimed on cash sales made instead of total sales made.

Contribution/value-add: This study harmonises South African VAT legislation with international best practices within the context of continual advancement of e-commerce transactions.