SA digital games tax proposed by government

SA Minister of Finance Pravin Gordhan presented his 2013 budget speech to parliament on 27 February 2013. Among his proposals was to impose VAT on foreign businesses that “sell e-books, music and other digital goods and services”.

Obviously this immediately brings to mind gamer’s favourite foreign digital distribution platforms such as Steam, and also raises the question of how the already limited iTunes and Google Play stores might be affected.

Under the “Tax Policy” section of his speech, Gordhan outlined new revenue proposals.

The Budget Review outlines various measures proposed to protect the tax base and limit the scope for tax leakage and avoidance…[It] is proposed that foreign businesses which sell e-books, music and other digital goods and services should be required to register as VAT vendors, in line with regulations which have been adopted by the European Union and other jurisdictions.

As outlined, this is currently only among a number of proposals made by the finance minister, and there will still be many processes ahead before it becomes part of tax law.

While a VAT requirement on digital goods might encourage large players such as Apple, Google, and Amazon to establish a local presence and therefore enhance their store offerings, it might also edge out digital distributors that serve smaller market segments such as gaming.

It also remains to be seen how the SA government could enforce such tax laws on companies with no base in South Africa, or prevent the sale of their digital goods.

MyGaming is awaiting feedback from experts in the tax field who can shed some light on the subject.