The National Treasury of South Africa in consultation with all other relevant stakeholders made a proposal to amend the concept of electronic services in its current form for VAT purposes. The proposal is to align with the digital economy that is evolving and exclude certain businesses from registering for VAT when all necessary requirements are met.
Overview of the current framework:
The South African (RSA) VAT framework for electronic services currently makes no distinction between business to business (B2B) or business to customer (B2C) services.
Currently the following services are excluded from the definition of electronic services: telecommunication services, educational services supplied and regulated in the exporting country and services supplied by a member of the same group of companies to a South African resident for consumption by that resident company.
Any foreign service provider who supplies the electronic services for consumption in South Africa is required to register for VAT according to the current legislation.
In order to implement the GloBE Pillar Two rules in South Africa, a draft Global Minimum Tax Bill 2024 (“Global Minimum Tax Bill”) was published on the 21st of February 2024 and subsequently enacted into law on the 24th of December 2024 through the Global Minimum Tax Act 46 of 2024 (“the GMT Act”). The GMT Act introduces the imposition of Top-up Taxes on qualifying multinational enterprises (MNEs) operating within South Africa.
The GMT Act is deemed to have come into operation on the 1st of January 2024, and qualifying MNE’s are required to apply the provisions of the GMT Act in the fiscal year beginning on or after that date (1 January 2024), meaning it has retrospective application. This approach ensures that South Africa does not lose out on any top-up tax that could otherwise be collected by another jurisdiction, particularly concerning MNEs operating within the country.
Qualifying Multinational Enterprises
The provisions of the GMT Act apply to entities within a “multinational enterprise group,” which is defined in the GMT Act as any group that includes at least one entity or permanent establishment located outside the jurisdiction of the Ultimate Parent Entity, as outlined in Article 1.2 of the GloBE Model Rules, and falls within the scope of Article 1.1 of those rules. In essence, the GMT Act applies to entities within an MNE group that has a total consolidated group revenue that exceeds EUR 750 million in at least two of the four fiscal years immediately preceding the tested fiscal year.
Ordinarily, in raising finance for a business, a taxpayer may incur finance costs such as raising fees, services fees and administration costs. These costs can be regarded as either capital or revenue in nature which determine whether such costs are deductible or not. In determining whether such finance costs can be deducted from a taxpayers taxable income in terms of the Income tax Act it is vital to consider what the Act provides in section 11(a) and 24J, read with 23g.
In a recent court case between Taxpayer Trust and The Commissioner for South African Revenue Services (IT 76795) [2025] ZATC 1 (13 January 2025), Taxpayer Trust sought to claim a section 24J or alternatively a section 11(a) deduction in relation to finance raising costs that were incurred in obtaining finance that was used to purchase and to also effect improvements on a commercial property. The taxpayer’s argued that the raising fees are deductible ‘’interest or other similar charges’’ as envisaged in section 24J. However, SARS contended that the raising fees are not ‘’interest or similar charges’’ and are capital in nature and could therefore not be deducted from the taxpayers’ income
In a recent ruling, the Kenyan Tax Appeal Tribunal addressed a critical issue regarding the most appropriate transfer pricing method in controlled transactions. The case involved Avic International Beijing Limited (the Appellant), a Kenyan company engaged in the importation, assembly, and sale of trucks, machinery, and motor vehicle spare parts. The Kenya Revenue Authority (KRA) had applied the Transactional Net Margin Method (TNMM) for determining the arm’s length price, which led to significant transfer pricing adjustments. Avic International contested this decision, arguing that a more suitable method would have been the Resale Price Method (RPM), which they believed was better aligned with their business model.
2025 Revenue Collection
On 1 April 2025, SARS announced a positive revenue-collection outcome for the 2024/25 fiscal year. By the end of March 2025, SARS had collected a record gross amount of R2.303 trillion, representing year-on-year growth of 6.9% against estimated nominal GDP growth of 5.4% (2024/2025). SARS paid refunds of R447.7
billion to taxpayers, the highest-ever amount in refunds (versus R413.9 billion in the prior year), representing growth of 8.2%. This brings the collected net amount to R1.855 trillion, which is almost R8.8 billion higher than the revised estimate, and R114.0 billion more than last year’s R1.741 trillion.
