A review of the non-differentiation of B2B and B2C transactions in the South African electronic services VAT regime

Abstract

Rapid technological advancement has resulted in a significant increase in the volume of e-commerce transactions where goods and services are supplied to South African consumers through an electronic medium. Local and foreign suppliers of e-commerce were not competing on a level playing field, therefore the Value-Added Tax Act (89 of 1991) (VAT Act) was amended to compel non-resident suppliers of electronic services to South African residents to comply with South African VAT regulations. The main objective of the research is to consider the South African VAT legislation, specific to foreign e-commerce transactions pertaining to the non-differentiation between B2B and B2C transactions in its current form and perform a comparison with the legislation in New Zealand and the OECD guidelines, in order to identify possible shortcomings. It was found that B2B transactions have a minimal impact on the South African tax base and that due consideration should to be given to updating the current VAT legislation to ensure that it remains relevant within a rapidly developing online market place. A broadening of the current legislation may be required to differentiate between B2B and B2C transactions in order to advance seamless trade activity of foreign businesses with South Africa, which in turn could aid in boosting the economy.