The dawn of the internet age has brought about concepts such as electronic commerce, virtual worlds and digitized products. When consumption tax laws such as value-added tax (VAT) or goods and service tax (GST) were legislated, these concepts were not envisaged. The aim of this article is to determine whether the South African value-added tax (VAT) Act is applicable to transactions occurring in virtual worlds. The article critically analyses section 7(1) of the VAT Act to determine its applicability to transactions occurring in virtual worlds. The benefit of this article will be to highlight the deficiency in the South African VAT Act in dealing with electronic commerce transactions as well as transactions arising in virtual worlds. The study reported here concluded that the South African VAT Act in its current format does not appear to deal with transactions occurring in virtual worlds effectively. Consequently, amendments to existing law should be effected in order to deal effectively with the transactions.