Smartphones to be taxed in Gigaba’s budget

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The 1% increase in VAT to 15% is not the only thing tech-savvy South African consumers should be worried about in Finance Minister Malusi Gigaba’s first (and hopefully last) budget speech. Gigaba also announced the that the definition of cellphones would be changed to include “smartphones” so that they can be taxed using ad valorem excise duties.

“The digital economy brings about many technological advances that have led to changes in business models. Today, we update draft VAT regulations to cover foreign businesses selling electronic services to South African consumers,” Gigaba said in Parliament. This seemingly refers to cloud computing and other online services that have previously not been part of the tax burden.

“It is disappointing that the regulations dealing with foreign electronic services have not kept up with international best practice,” said Charles de Wet, the head of indirect tax at PwC Africa.

“The 2017 Budget Review announced that regulations prescribing foreign electronic services subject to VAT would be broadened to include cloud computing and other online services. Updated draft regulations prescribing foreign electronic services and supporting amendments to the VAT legislation are to be published on Budget Day for public comment,” he added.

No figures for this were specifically mentioned in Gigaba’s speech. However, he said the top rate of ad-valorem excise duties on some luxury goods will be increased from 7% to 9% and will also raise the maximum ad-valorem duties for cars to 30% from 25%.

These excise duty increases will be implemented from 1 April 2018.

The budget review said the new duties would be applied to “goods that are consumed mainly by wealthier households (such as cosmetics, electronics and golf balls)”.

However, Gigaba has hinted at cheaper data prices.

“As the President [Cyril Ramaphosa in his State of the Nation speech last week] indicated, the Competition Commission’s market inquiry to investigate data prices will be completed by the end of August 2018. This will support the work being done by the government to improve competition in the telecommunications sector.”

In a stirring speech Ramaphosa said: “The drive towards the digital industrial revolution will be underpinned by the availability of efficient networks.

“We will finalise our engagements with the telecommunications industry and other stakeholders to ensure that the allocation of spectrum reduces barriers to entry, promotes competition and reduces the cost to consumers.”

He began this section of his maiden SONA speech by stressing the importance of the digital economy and advances in technology.

“Our prosperity as a nation depends on our ability to take full advantage of rapid technological change. This means that we urgently need to develop our capabilities in the areas of science, technology and innovation.

“We will soon establish a digital industrial revolution commission, which will include the private sector and civil society, to ensure that our country is in a position to seize the opportunities and manage the challenges of rapid advances in information and communication technology.”

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Toby Shapshak is editor-in-chief and publisher of Stuff, a Forbes contributor and a Financial Mail columnist. He has been writing about technology and the internet for 20 years and his TED Global talk on innovation in Africa has over 1,5-million views. He has written about Africa's tech and start-up ecosystem for Forbes, CNN and The Guardian in London. He was named in GQ's top 30 men in media and the Mail & Guardian newspaper's influential young South Africans. He has been featured in the New York Times. GQ said he "has become the most high-profile technology journalist in the country" while the M&G wrote: "Toby Shapshak is all things tech... he reigns supreme as the major talking head for everything and anything tech."

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