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. The commission argued that these companies should pay tax on their South African operations and should not be allowed to avoid tax obligations.
“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. It added that the infrastructure investment needed to further digital services in South Africa can only be sustainably funded if international technology companies “are not allowed to avoid and evade tax in the manner in which they currently do so”.
These tax avoidance techniques include the selling of intellectual property to tax havens, where profits are allowed to accumulate and little or no tax is accrued in the countries where these businesses operate. If this recommendation were to be implemented, companies such as Netflix and Facebook – both of which have been accused of funnelling money through tax havens to avoid tax obligations – will be required to pay tax on their operations in South Africa.
The result of this may be increased prices for Netflix subscriptions in South Africa unless the global streaming giant opts to take the tax hit without passing the additional cost onto its customers.
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, stating that 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. Another reason South Africa may consider imposing a tax on major international companies that operate locally is to account for a shortfall in its budget, which has been decimated by the COVID-19 pandemic.
However, the willingness of many countries to impose a tax on companies such as Netflix is inhibited by the lack of a unified approach. 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 last asked about the tax it paid in South Africa, the streaming service noted that it was already paying VAT in the country.
