Can new digital tax on Netflix, Amazon, Facebook help shore up SA finances?

A new report reveals various changes to South Africa’s digital policy. International companies like Netflix, Amazon, and Facebook with global operations will have to pay a proposed a digital tax. This is according to the Presidential Commission on the Fourth Industrial Revolution established by President Cyril Ramaphosa. South Africa would like to see these global companies pay digital tax in the countries where they operate. The Tax Brief: Digital Economy and Taxation Policy Considerations June 2020 presentation outlined the context on global digital tax. It was published by the Parliamentary Budget Office (PBO). South Africa has seen a decline in corporate tax revenue over the years, partly as a result of a shift to an online business environment. It is necessary to consider taxation measures that enable revenue to be raised from digital economic activities income, says the PBO. This article was first published on MyBroadband. – Denise Mhlanga

New “Netflix tax” proposed for South Africa

By Jamie McKane

The Presidential Commission on the Fourth Industrial Revolution established by President Cyril Ramaphosa has published a report that recommends a number of changes to South Africa’s digital policy.

Among these proposed changes is the implementation of a digital tax on global companies such as Netflix, Amazon, and Facebook, who operate in a number of countries around the world.

Companies with operations in South Africa should not be allowed to avoid tax obligations, according to The Commission.

“It is a priority for this Commission to recommend that RSA participates actively in international efforts to ensure that technology companies pay a fair share of tax in the countries in which they operate,” the report stated.

The infrastructure investment needed to further digital services in SA can only be sustainably funded if these companies pay tax.

According to The Commission, these tax avoidance techniques include the selling of intellectual property to tax havens. Profits accumulate while little or no tax is accrued in the countries where these businesses operate.

If this recommendation is implemented,  Netflix and Facebook will have to pay tax in South Africa. These companies have been accused of funnelling money through tax havens to avoid tax obligations.

Unless Netflix opts to take the tax hit without passing additional costs, this could increase subscriptions costs in South Africa.

Reasons for a digital tax

The commission’s report mentioned that South Africa’s digital strategy should be informed by its international counterparts, and local regulators may look to countries such as France for guidance on its digital tax.

France is considering imposing a 3% tax on digital giants such as Netflix and Amazon. It says this move has “never been more necessary”.

Many other European countries are looking to follow suit, and South Africa may look to this example as an additional motivation for its implementation of a digital tax.

South Africa may consider imposing a tax on major international companies that operate locally to account for budget shortfall. In addition, this has been decimated by the COVID-19 pandemic.

The  lack of a unified approach is a hindrance countries’ willingness  to impose tax on companies like Netflix.

Many nations are waiting for the Organisation for Economic Co-operation and Development (OECD) to design a unified digital tax approach to be adopted globally to avoid more countries unilaterally imposing a digital tax.

When asked about the tax it paid in South Africa, Netflix said it was already paying VAT in the country.

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