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Cape Town - The Interactive Advertising Bureau of SA (IAB SA) supports initiatives that will allow its members to compete on an even playing field with their international counterparts.
This is the reaction of Timothy Spira of the IAB SA to the increasing debate about global giants like Google attracting huge amounts of advertising revenue from local agencies and companies, yet avoiding certain tax contributions.
Google has a dominant position in the SA online market and some estimates put its current online advertising revenue from South Africa between R800m and R1bn.
The IAB SA, formerly known as the Digital Media & Marketing Association (DMMA), is part of the international IAB, which is dedicated to growing the global digital industry.
"The IAB SA is committed to furthering the interests of our publisher members and growing the South African online media industry," Spira told Fin24.
"Although we're not a statutory body, we do expect all participants in the industry to employ good corporate governance. We are broadly supportive of initiatives that will allow our members to compete on an even playing field with their international counterparts."
A Google spokesperson told Fin24 the company partners with valued publishers around the world who choose to list themselves in Google News.
In 2013 Google shared more than $9bn with its AdSense partners.
The spokesperson said Google complies with tax laws in South Africa and every country where it operates.
Tax implications
"This is indeed a very interesting subject and one where the South African Revenue Service (Sars) and Treasury are trying to increase revenue collections," tax expert Marc Sevitz of TaxTim told Fin24.
"Sars has indentified that there are industries which, due to their corporate structuring, have been able to remain outside of the VAT loop and quite rightly have introduced legislation aimed at collecting the VAT which attracts on these transactions."
Sevitz explained that VAT is essentially applied on goods and services which are consumed in South Africa.
The web, however, is seen more as a global space and it is therefore difficult to define exactly where this service or good is consumed.
"However, there must be some measurement of location for all goods and services. Sars’ view that VAT should be applied, because these ads or products are sold, viewed or consumed in South Africa, makes sense," he said.
"I agree with this- however, the implenentation may prove difficult."
Sars has planned to call for all foreign companies to register as VAT vendors in South Africa in the hopes that this will bring them into the tax net.
"However, due to the complicated registration process and requirements it may force companies to increase their costs and actually establish a base or at the very least a small tax office based in South Africa," said Sevitz.
"So, if this is the route Sars is going to go, then certain provisions should be put in place which make registering as a foreign entity simple to ensure they do comply with the tax law."
Wtihholding system the answer?
Sevitz thinks a simple and quick withholding tax system may be the way to ensure funds do not leave South Africa, only for them to have to be sent back in the form of VAT returns.
"This adds extra layers of complications to the process and should really be simplified for these unique cases," he said.
He said pay as you earn tax and corporate tax are whole other avenues and should be dealt with via the definitions of effective management and control of a company.
"Treasury would really need to look hard at these definitions to possibly extending them to corporates such as these," he said.
"However, this would be met with stiff opposition and perhaps cause these companies not to do business in South Africa."
Another issue, Sevitz points out, is that the actual goods downloaded or bought are not being produced in South Africa.
They are produced internationally, but consumed in South Africa, similar to physically buying items overseas and bringing them into SA.
"Those companies we buy from do not pay tax in SA. This argument, quite correctly, lends itself more to the VAT application than corporate or payroll taxes."
- Fin24
This is the reaction of Timothy Spira of the IAB SA to the increasing debate about global giants like Google attracting huge amounts of advertising revenue from local agencies and companies, yet avoiding certain tax contributions.
Google has a dominant position in the SA online market and some estimates put its current online advertising revenue from South Africa between R800m and R1bn.
The IAB SA, formerly known as the Digital Media & Marketing Association (DMMA), is part of the international IAB, which is dedicated to growing the global digital industry.
"The IAB SA is committed to furthering the interests of our publisher members and growing the South African online media industry," Spira told Fin24.
"Although we're not a statutory body, we do expect all participants in the industry to employ good corporate governance. We are broadly supportive of initiatives that will allow our members to compete on an even playing field with their international counterparts."
A Google spokesperson told Fin24 the company partners with valued publishers around the world who choose to list themselves in Google News.
In 2013 Google shared more than $9bn with its AdSense partners.
The spokesperson said Google complies with tax laws in South Africa and every country where it operates.
Tax implications
"This is indeed a very interesting subject and one where the South African Revenue Service (Sars) and Treasury are trying to increase revenue collections," tax expert Marc Sevitz of TaxTim told Fin24.
"Sars has indentified that there are industries which, due to their corporate structuring, have been able to remain outside of the VAT loop and quite rightly have introduced legislation aimed at collecting the VAT which attracts on these transactions."
Sevitz explained that VAT is essentially applied on goods and services which are consumed in South Africa.
The web, however, is seen more as a global space and it is therefore difficult to define exactly where this service or good is consumed.
"However, there must be some measurement of location for all goods and services. Sars’ view that VAT should be applied, because these ads or products are sold, viewed or consumed in South Africa, makes sense," he said.
"I agree with this- however, the implenentation may prove difficult."
Sars has planned to call for all foreign companies to register as VAT vendors in South Africa in the hopes that this will bring them into the tax net.
"However, due to the complicated registration process and requirements it may force companies to increase their costs and actually establish a base or at the very least a small tax office based in South Africa," said Sevitz.
"So, if this is the route Sars is going to go, then certain provisions should be put in place which make registering as a foreign entity simple to ensure they do comply with the tax law."
Wtihholding system the answer?
Sevitz thinks a simple and quick withholding tax system may be the way to ensure funds do not leave South Africa, only for them to have to be sent back in the form of VAT returns.
"This adds extra layers of complications to the process and should really be simplified for these unique cases," he said.
He said pay as you earn tax and corporate tax are whole other avenues and should be dealt with via the definitions of effective management and control of a company.
"Treasury would really need to look hard at these definitions to possibly extending them to corporates such as these," he said.
"However, this would be met with stiff opposition and perhaps cause these companies not to do business in South Africa."
Another issue, Sevitz points out, is that the actual goods downloaded or bought are not being produced in South Africa.
They are produced internationally, but consumed in South Africa, similar to physically buying items overseas and bringing them into SA.
"Those companies we buy from do not pay tax in SA. This argument, quite correctly, lends itself more to the VAT application than corporate or payroll taxes."
- Fin24
