Educational institutions making exempt supplies will likely be
negatively impacted with the impending introduction of VAT on
e-commerce transactions in South Africa with effect from 1 April
One could even go as far to say that educational institutions
had it good under the reverse charge mechanism (also referred to as
VAT on 'imported services') as there was arguably no VAT
leakage when dealing with foreign suppliers of certain e-commerce
Environmental concerns, technology advancements and access to
information are all contributing factors to the way in which
university students, in particular, embrace the digital libraries
offered by educational institutions. Students are able to access
extensive amounts of information from electronic databases made
available by universities and sourced from foreign suppliers. There
is however a concern that the introduction of VAT on e-commerce
transactions could have a knock-on effect on the cost of education,
as educational institutions would likely need to pass on the
additional 14% VAT not previously budgeted for. Educational
institutions generally make exempt supplies, the 14% standard rate
of VAT charged by suppliers, represents a fixed cost which cannot
be claimed back from the South African Revenue Service (SARS) as
In general, educational institutions making exempt supplies to
students were not required to pay VAT on imported services as
reliance was placed in many instances (potentially incorrectly) on
the exemption catered for in s14(5)(c) of the Value-Added Tax Act,
No 89 of 1991 (VAT Act). The aforementioned section provided
exemption from VAT on importation where there was a supply of an
'educational service' (undefined term) by an educational
institution in an export country, which is regulated by an
educational authority in that export country. It is debatable
whether the supply of knowledge databases by large offshore
publishing houses qualify under the exemption in s14(5)(c) of the
VAT Act, the main bone of contention being oversight by an
educational authority in that export country.
The debate as to whether VAT on imported services should have
been charged or not, will, however be put to rest with the
introduction of VAT on e-commerce transactions, as the offshore
database suppliers would likely be required to register as vendors
and charge VAT at the standard rate of 14%. Although the date of
implementation will be pushed back to 1 April 2014, there is an
important piece of documentation that offshore suppliers of
e-commerce services will be waiting for.
This is based on responses by National Treasury and the South
African Revenue Service (SARS) to the Standing Committee on Finance
(SCOF), on 11 September 2013, stating that the Minister of Finance
will issue a regulation as to which e-commerce services will be
subject to VAT. No further details have been provided regarding the
date on which the regulation will be issued, but it is hoped that
it would address potential anomalies and exclude suppliers that
were unintentionally caught in the South African VAT net.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).