If the news of rising game prices on the back of a weak rand didn’t put a damper on your week, hold onto your controllers, because we have some more bad news for you.
Treasury has published the new electronic services regulations, detailing which digital products and services will be subject to 14% VAT come 1 April 2014.
The regulations have been published by Finance Minister Pravin Gordhan for comment, and follow the proposals he made in his 2013 budget speech to impose VAT on foreign businesses who “sell e-books, music and other digital goods and services”.
The regulations are called the Electronic Services Regulations and come into operation on a proposed date of 1 April 2014.
In terms of the regulations, the VAT will apply to any supplier of electronic services from an “export country” to any resident in South Africa, or where payment is made from a local bank.
Specifically mentioned (as you will see below), are a host of gaming-related goods and services, including subscriptions to online games, MMOs, movies and, well, almost everything you can think of.
So what exactly will be taxed? The list below details all digital goods and services which will be impacted, according to the regulation document:
Educational services
- distance teaching programmes;
- educational webcasts;
- internet-based courses;
- internet-based education programmes; or
- webinars.
Games and games of chance
- internet-based games, including any electronic game or multiplayer role-playing game;
- interactive games, such as games of chance, where the result is influenced by the skill of the player; and
- electronic betting or wagering.
Information system services
Internet-based auction service
Maintenance services
Which refers to technical support relating to
- blogs;
- databases;
- information systems;
- information system services; and
- websites.
Online content
- e-books, which means any digitised content of any book or electronic publication;
- films, which means any broadcast, documentary home-made video, live streaming performance, movie, music video, program, television series, or video
- images, which means any desktop theme, photographic image, pictorial image, or screensaver,
- music, which means any audio clip, broadcast jingle, live streaming performance, ringtone, song, or sound effect,
- software, including apps, system software, or plugins, and any update to these programs.
Subscription services
Any subscription service to:
- blogs;
- databases;
- information system services;
- journals;
- magazines;
- newspapers;
- games;
- social networking services;
- webcasts;
- websites;
- web applications; or
- web series.
The bad news is that the added taxes on digital goods is likely to push the price of goods up, according to a tax expert.
Following the initial proposal for a digital tax, Gerard Soverall, PWC’s head of indirect tax, said that considering the revenue generated by large online retailers, governments are losing out on large amounts of VAT.
“It is a profit issue at the end of the day. VAT at 14% in South Africa is a material number in your profits so online businesses will pass that on [to consumers]. There is not much doubt in that,” said Soverall.
Soverall argued that, even if the 14% SA VAT is passed on to consumers, digital goods are still likely to be more affordable than the physical equivalent purchased in brick and mortar shops.
With the rand not looking like it’s going to strengthen any time soon, increasing fuel costs and now this tax – it looks like gamers have a rough time ahead.
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