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South Africa proposes digital tax for Netflix, Amazon, and Facebook

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The Presidential Commission on the Fourth Industrial Revolution has published a report that looks at the state of technology in South Africa, and possible tax changes that the country could introduce to help it prepare for the fourth industrial revolution.

This commission comprises of 33 experts and 60 groups, including listed companies and government departments, mandated to look at changes government can introduce as part of its focus on technology.

Among the recommendations is a series of tax proposals, including a new digital tax for companies such as Netflix, Amazon and Facebook, which operate in a number of territories internationally.

The three tax changes proposed include:

  • Digital tax for international technology companies;
  • Tax structure on processed minerals used in 4IR components; and
  • A Research and Development (R&D) tax incentive for industry 4.0 start-ups.

The commission said that it is a ‘priority’ that South Africa participates actively in international efforts to ensure that technology companies pay a fair share of tax in the countries in which they operate.

It said that key infrastructure and other subsidised services and state investments can only be sustainably funded if technology companies are not allowed to avoid and evade tax in the manner in which they currently do so.

The commission also cited tax avoidance techniques such as transfer pricing and the selling IP to tax havens where the profits are allowed to accumulate, with little or no tax accruing in the countries where the companies actually operate.

This avoidance is increasing the gross inequality within and between nations which has to date characterised the 4IR, it said.

The commission said that the government should adopt a digital taxation draft law – pointing to similar legislation which was announced in Turkey in 2019 and became effective from 1 March 2020.

Under Turkey’s new tax, turnover generated from certain digital services are subject to 7.5% Digital Services Tax in the country.

The commission also recommended that the government develops tax policies that can better account for operations of digital and virtual companies ‘that have seen exponential growth as their services have become ubiquitous’.

Source: Business Tech

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