The impact of implementing digital services tax in South Africa : a comparative study

Abstract

Background: The digital economy has been growing tremendously in the recent years, transforming the way business and everyday life is conducted. The digital economy provides plenty of benefits to society at large and has created digital companies, while other traditional companies migrated to remote working. Although the digital economy presents great benefits, it poses tax challenges to the current South African tax system as well as the international tax system that is in place. The international tax policy makers are currently compiling a long-term global solution to address the digital economy tax challenges, however, in the interim, various countries have proposed, introduced or implemented unilateral measures to tax the digital economy with the purpose to protect their jurisdictions over their tax base. Main purpose of the study: The digital economy has recently been a focus area of debate. The purpose of this study is to analyse the tax challenges that the digital economy poses on the current tax system. The draft of the international tax policy makers global solution proposal will be analysed. A comprehensive analysis will be conducted on four different countries that have implemented digital services tax as a unilateral measure. Furthermore, the advantages and disadvantages of digital services tax will be examined in order to reach a conclusion on the implementation of digital services tax in South Africa. Method: The research method that is followed in this study is a systematic literature review methodology. This method assisted in identifying and collecting available and relevant literature regarding the digital economy and digital services tax. The guidelines that were followed to perform this study included planning review, performing the review and reporting the findings. A conclusion was reached as to whether South Africa should introduce a digital services tax. Results: The countries that were selected to be analysed in this study have varying digital services tax policies in place together with various advantages and disadvantages. The findings from these countries provide South Africa with valuable lessons to consider should it implement digital services tax as a unilateral measure to tax the digital economy to protect its tax base. Conclusions: This study addressed the tax challenges that the digital economy presents and evaluated the proposed international tax global solution. Digital services tax was defined and the advantages and disadvantages of implementing this form of tax are outlined. A conclusion is reached in that South Africa should wait for the completion of the global solution to tax the digital economy. Recommendations for potential further study concerning the digital economy are made.