Good News for DStv: South Africa Upgrades Its Tax Policy, Forcing Netflix to Pay VAT

South Africa has upgraded its tax policy. Now, Facebook, Google, Netflix, and other digital ICT utilities would have to pay the country’s VAT. The regulation takes effect April 1, 2019.

This after the National Treasury published new regulations specifically for electronic services which expanded the meaning of “electronic services” to “any services supplied by means of an electronic agent, electronic communication or the internet for any consideration”.

That means any electronic services from another country provided in South Africa – such as such as online advertising, online courses, online consulting services, software subscriptions, website hosting, streaming services, online games, podcasts and publications – will be subject to 15% VAT, Natalie Macdonald Govender, associate at Bisset Boehmke McBlain attorneys, said.

Making this work is simple: just ask the local banks to collect the VAT as the transactions are being processed. Where that is not possible, do not allow any customer to use South African domiciled financial products (credit card, bank account, etc) to effect such payments.

Of course, the ICT utilities will likely add the VAT and the burden would go to the local customers. And at the end, the country has collected extra change from its citizens. Google, Netflix and others would not be financially impacted even though they may lose some customers who may find their products more expensive.

DStv systems (source: Quartz)

But do not miss the game plan: if local competitors like Naspers’ DStv pay VAT, it is fair that Netflix does the same. By bringing everyone on parity, competitive-pricing equilibrium will be attained. Yes, by not collecting VAT from Netflix, the company was having an advantage over DStv in South Africa [by not collecting local VAT, Netflix fees were artificially lower]. Sure, you can make a case that Netflix has taxes to pay in U.S. But that does not concern the local regulators and competitors: it was Netflix that left its home country to compete in another. It has to do like the locals!

This is certainly good news for DStv; it has made that case in the past.

“As a country we have national objectives … if I was to be very narrow, I would say [to Icasa]: treat us like Netflix, so we do not have to pay tax or comply with black economic empowerment regulations,” he told the South African newspaper. “I am saying bring the likes of Netflix in the same net. Netflix does not employ even one person in this country, it doesn’t pay tax, they do not have to do any local content.”

Watch out – Netflix prices will go higher (from the consumer angle). Implication: the best show would now WIN, not by imbalance created via 19th century tax policy.

Expect this idea to scale across Africa.

Not Just Taxes in South Africa

I do believe that the tax upgrade is partly to help the local competitors. South Africa has a great record of helping its own. Think of the massive investment PIC is making in MTN Group right now. Possibly, that would help MTN overcome the paralysis it is going through at the moment.

The Public Investment Corp. raised its stake in MTN Group Ltd. for the second time in as many days, taking advantage of a price that’s close to 10-year lows amid a crisis in Nigeria.

The PIC’s shareholding is almost 26 percent, Johannesburg-based MTN said in a statement on Thursday. The previous day, Africa’s largest wireless carrier by sales said the stake had increased to about 24 percent.

“We believe MTN has a strong set of assets and competencies,” Deon Botha, head of corporate affairs, said in emailed comments, declining to say more about the PIC’s rational for boosting its stake.

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