How the VAT increase will affect digital purchases

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Yesterday Minister of Finance, Malusi Gigaba, delivered the Budget Speech for 2018 and new taxations have prompted a lot of public discussion.

The biggest news for many is an increase of value added tax from 14 percent to 15 percent. While that looks like a 1 percent increase, it’s an effective 7% increase from the original rate of 14% for goods and services from 1st April with the new 15 percent VAT rate in place.

“South Africans will most certainly feel the VAT increase as it affects almost every product/service consumed. There are of course several basic items which are Zero-Rated or do not attract VAT, however for the most part we will start to see a rise in prices across the board,” chief financial officer at Tax Tim, Marc Sevitz tells

The CFO goes onto say that an increase in the fuel levy (52c) will also have an impact on the cost of goods.

“So combined with the VAT hike, consumers will feel this in their pockets,” says Sevitz.

But it’s not just the price of goods that are sold in shops here in South Africa, but the price of goods and services you buy online such as games and subscriptions to Netflix that will also likely be affected.

During yesterday’s speech Gigaba said, “The digital economy brings about many technological advances that have led to changes in business models. Today, we update draft VAT regulations to cover foreign businesses selling electronic services to South African consumers.”

What exactly does this mean? Sevitz explains below.

“For the last few years there has been inconsistency on the VAT treatment of foreign digital services which gave been provided to South Africans. In theory these were supposed to attract VAT, but in practice this has not been the case.”

The CFO explains that in cases where customers have not been charged VAT, price increases of at least 15 percent can be expected.

Customers that use services that have been charging VAT (such as Steam) aren’t out of the woods though, says Sevitz.

“Most businesses will be able to absorb this cost as a VAT input and claim it off what is being charged to the customer, but for the end user, the real consumer of goods, they will again feel the pinch.”

So to sum up then: everything, including digital purchases (and excluding zero rated goods), is about to get more expensive.

Brendyn Lotz

Brendyn Lotz

Brendyn Lotz writes news, reviews, and opinion pieces for Hypertext. His interests include SMEs, innovation on the African continent, cybersecurity, blockchain, games, geek culture and YouTube.