Impending Tax Reforms Set to Transform Business and E-commerce in South Africa

South Africa is on the threshold of notable tax legislative amendments as the National Treasury scrutinizes VAT adjustments and revisits tax regulations affecting businesses with international operations. As citizens fill their tax returns for 2023, corporates must brace for transformative changes intended to patch regulatory gaps and refine tax rules for foreign activities.

Following President Cyril Ramaphosa's Parliament opening address, indications surfaced for potentially broadening the scope of VAT-exempt essential food items to alleviate the financial load on citizens battered by costlier commodities. This shift is a nod to mitigating escalating poverty and living costs against the backdrop of companies profiting substantially.

Outcomes from PwC's monthly review project dramatic alterations, especially in VAT application on cross-border digital services, adaptations to taxation timing, and simplification measures for businesses involved in foreign donor-funded ventures. Critical are the proposed revisions announced in the 2024 Budget, which are to unfold based on Treasury's consultations with SARS, and hold the weight to significantly sway the business landscape.

The evolution of online commerce mandated a revision of the VAT levy on foreign e-services as of 2014. Discontent arose when the 2019 modifications led to a broader VAT net that superseded global norms, capturing both B2B and B2C services to capitalize on otherwise lost revenue. Now, the 2024 Budget propositions include a narrowed focus on consumer-directed sales, rekindling debates on the equitable treatment of businesses adapted to the former B2B VAT registration obligations.

Businesses traditionally balanced VAT costs via input tax deductions on purchases connected to taxable supplies. The existing five-year leniency for claiming deductions may be curtailed to require immediate tax period adjustments, optimizing tax administration but posing potential hurdles for businesses in managing incongruent invoicing or recurrent modifications.

For Foreign Donor-Funded Projects (FDFPs), current systems to reclaim VAT on project outgoings are marred with inefficiencies dating back to 2020 reforms. Lengthy approval times and intricacies in procedures lessen the projects' efficacy and dissuade foreign donations. The Treasury's proposal to mitigate these complexities via unified VAT registration for all FDFPs of an agency promises to alleviate the strains.

A spotlight has been thrown on potential tax law redefinitions post-Coronation's court success against SARS, with implication that the National Treasury might craft amendments to the FBE definition in response to the Constitutional Court's verdict. Actions will likely hinge on ensuring critical business activities align within the same jurisdiction for FBE exemptions to remain valid.

The array of potential tax adjustments signaled by PwC raises a flag to businesses to stay vigilant, especially noting past precedents of retrospective legislative amendments in line with the rule of law.