In a move aimed at modernizing South Africa’s tax system, the National Treasury, in collaboration with the South African Revenue Service (SARS), is considering significant changes to the Value-Added Tax (VAT) on cross-border electronic services, foreign donor-funded projects, and the period for tax deductions.

VAT on Cross-Border Electronic Services

The first proposed change relates to the VAT treatment of cross-border electronic services. Currently, foreign suppliers of electronic services, such as online software, music, and video streaming, are not required to register for VAT in South Africa, even if they supply these services to local customers. This has led to concerns about the fairness and competitiveness of the tax system, as local suppliers are required to charge VAT on similar services.

To address this issue, the National Treasury and SARS are proposing to require foreign suppliers of electronic services to register for VAT in South Africa, if their annual turnover from these services exceeds a certain threshold. This change is expected to level the playing field for local suppliers and ensure that foreign suppliers contribute their fair share of VAT revenue.

VAT on Foreign Donor-Funded Projects

The second proposed change relates to the VAT treatment of foreign donor-funded projects. Currently, these projects are exempt from VAT, which can lead to significant costs for the donor organizations and the South African government. To address this issue, the National Treasury and SARS are proposing to introduce a VAT refund mechanism for foreign donor-funded projects, which would allow these organizations to claim back VAT incurred on eligible expenses.

This change is expected to reduce the costs associated with these projects and make them more sustainable in the long run. It would also align South Africa’s VAT system with international best practices and promote greater transparency and accountability in the management of donor funds.

**Changes to the Period for Tax Deductions**

The third proposed change relates to the period for tax deductions. Currently, taxpayers are required to submit their tax returns and claim deductions within a certain period, which can be as short as six months. To provide greater flexibility and reduce the administrative burden on taxpayers, the National Treasury and SARS are proposing to extend the period for tax deductions to 12 months.

This change is expected to benefit small and medium-sized enterprises, which often face cash flow challenges and may require more time to claim deductions. It would also reduce the likelihood of errors and disputes arising from rushed or incomplete tax returns.

**Conclusion**

The proposed changes to VAT on cross-border electronic services, foreign donor-funded projects, and the period for tax deductions are significant and far-reaching. They are expected to promote greater fairness, competitiveness, and transparency in South Africa’s tax system, while also reducing the administrative burden on taxpayers. As the National Treasury and SARS continue to engage with stakeholders and refine these proposals, it is clear that these changes have the potential to make a positive impact on the economy and the lives of South Africans.