Abstract:
Background
The digital economy affects nearly all aspects of everyday human life and is becoming
more and more entrenched in a wide variety of economic sectors. According to the Davis
Tax Committee, this entrenchment has made it increasingly difficult to differentiate the
digital economy from traditional economic trade for purposes of taxation.
The digital economy exacerbates certain base erosion and profit shifting tax risks and, as
a result of a lack of international consensus to tax the digital economy, taxing authorities
worldwide have begun implementing different methods in order to tax the digital economy.
Main purpose of study
This study will focus on evaluating methods applied internationally in taxing the digital
economy and will aim to examine whether South Africa’s current approach in taxing the
digital economy should be adapted to ensure that the most effective mechanism for taxing
the digital economy is used.
Method
This study will be conducted as qualitative research based on the multi-sited, global
research method. It will also contain comparative studies where the taxation method
applied by South Africa (in relation to the digital economy) will be compared to the methods applied by other developed countries in order to establish whether South Africa’s
taxation is in line with international guidance.
Results
It was found that South Africa complies with the OECD VAT guidelines as well as the
recommendations made by the Davis Tax Committee in relation to taxing the digital
economy.
It was also found that taxing the digital economy both by way of direct and indirect taxing
methods could be an effective, temporary solution to address the tax risks posed by the
digital economy.
Conclusions
Although South Africa’s current VAT legislation should serve as an effective mechanism to
tax the digital economy, South Africa could consider adapting and enhancing its legislation
to further improve the effectiveness of its VAT legislation by adopting certain taxing
mechanisms implemented in the UK.
South Africa should strongly consider implementing a digital services tax that could
provide a temporary solution to tax the digital economy by way of a direct tax.
