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South Africa to join in on global digital tax movement

(Image credit: Netflix)

In addition to enforcing a local content quota on multinationals like Netflix, the Department of Communications and Digital Technologies is considering a digital tax system.

The French government implemented a Digital Service tax (DST) where the country taxes 3% on revenue generated by digital companies like Facebook, Netflix and Amazon. 

These companies are those that provide advertising services, sell data to users for advertising purposes or that perform intermediation services. The DST also needs to be paid by companies with global revenues of €750m (R13 726 708 207) or more. Alternatively, if sales in France equate to a minimum of at €25m, these companies are required to pay DST too. 

In Turkey, a digital tax system was implemented this year where companies are taxed 7.5%. Other parts of the world are also considering jumping on the bandwagon, including South Africa. 

President Cyril Ramaphosa’s 4IR Commission has said it is very important for South Africa to join in on implementing a digital tax system to ensure that international companies are paying tax where they operate. The Commission has proposed a similar tax draft law to Turkey.

The proposed tax system is fair in that it will hold these multinationals accountable. A major issue is tax avoidance, where companies transfer pricing and sell IP to tax havens and earn interest on the profit as a result, without paying tax to the countries where they have established operations. 

The only red flag when it comes to tax in South Africa is the age-old question: Will the collected funds be used correctly?