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South Africa's new tax on Netflix and other online services could see price increases – Hit Critical

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It may not be cheap, but for most of what is available, South African has a pretty good market for online subscriptions to a wide variety of media. Spotify is a great platform for the best music around, Netflix continues to make regular TV feel like a lumbering dinosaur that has turned into a tar pool and the Xbox Game Pump Game service is a value for money game buffet.

Not cheap, but there are plenty of affordable housing for most households who want to get a subscription. Well, mainly affordable as the National Treasury intends to introduce a new regulation that would force international services to evaluate what they offer and redistribute themselves as an electronic service. The bundle here is that doing so will mean that these companies will have to register for VAT in South Africa, which means that consumers will pay extra at the end of the day for their subscription of choice .

"What is envisaged by the definition is that the services that are delivered are basically automated and include a very human intervention and it is impossible to get in the absence of information technology," said VAT specialist Seelan Moonsamy of a company international law Baker and McKenzie to BusinessTech.

Only a limited number of services can be provided by the above methods that have been exempt from the definition of electronic services, which are educational services regulated in the export service of the overseas service provider, and telecommunications services.

In terms of what could be redistributed as an electronic service? Quite everything with an online component:

  • Software subscription services;
  • The use of software by an entity in South Africa provided electronically by its holding company located abroad (unless the prohibition applies);
  • Broadcasting;
  • Cloud computing;
  • Advertising services;
  • Hapchwarae;
  • Any ordering services made through an online platform, etc.

"If these companies provide its services by electronic means and that their total services are more than R1 million on a rolling 12 month period they will have to register," added Moonsamy.

Ultimately, the customer would bring the added value tax in the form of higher prices as VAT – in economic continuity – use tax. I can imagine that behemoths like Amazon and Google would continue to be very competitive based on their ability to reduce prices, so their likely VAT registration for electronic services would have no major impact on their ability to attract customers and their revenue.

The new regulation will be revised live next year on April 1, and unfortunately a joke has not been scheduled for April.

Updated: November 29, 2018

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