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South Africa Set to Buck Trend in Bombshell e-Tax

South Africa seems set to fly in the face of conventional Internet wisdom and impose tax or duties on online e-commerce transactions.

In a statement released on Friday, Director-General of Communications, Andile Ngcaba announced that legislation will be tabled toward the end of next year in terms of which the existing barriers between electronic and traditional transactions will be eliminated. This includes the contentious issues of taxation and the imposition of trade tariffs.

The Department of Communications has been investigating regulation of the electronic commerce arena for some time already, having appointed nine working groups with representatives from government, industry and labour in order to draw up a comprehensive policy document.

Despite Ngcaba's assertion as to the direction of Internet commerce regulation, the working group for Online Customs and Taxation announced at a meeting with e-commerce leaders on Friday that the Department of Finance had not yet finalised its position on e-commerce taxation.

According to the Group's Convenor Sudhir Sooklal of the Department of Trade and Industry, the issue is not one of tax policy, but rather tax administration.

However the semantics of the matter are addressed, the Department of Communication appears to know in what direction it is heading with Ngcaba's unambiguous statement.

The removal of barriers means that there will be no essential laws drawing a distinction between electronic and traditional commerce channels, effectively making electronic transactions subject to the same regulations.

This flies in the face of European Union and US regulations that not only prohibit e-commerce taxation, but actually provide tax relief measures for e-commerce related business.

Implications of the proposed taxation aside for the moment, the confusion amongst local policy-makers appears obvious in their simultaneous and contradictory decision to support the US-led extension on the moratorium on e-commerce transactions when the World Trade Organisation (WTO) convenes in Seattle this week.

Communications Minister Ivy Matsepe-Casaburri announced at Friday's conference that the governments intention to harmonise local regulations with international e-commerce guidelines. In line with this prerogative, it was announced that South Africa would be supporting calls for the extension of the moratorium on e-commerce tariffs.

The only way in which this could correlate with Ngcaba's statement is if any e-commerce regulation is intended to be just that; regulation, without any talk of tariff or tax.

The contradiction is evident however, in that removing existing distinctions between electronic and traditional commerce will make both forms of commerce subject to the same legislation.

The split in loyalties towards a global moratorium has a definite first-world versus third-world feel to it, with countries newly initiated in e-commerce wary of allowing the US to develop a monopoly in this field, and at the same time, being cognisant of the potential tax revenue of the emerging global electronic market.

Already, a group of 77 countries, mostly developing nations, has stratified itself against the US in the other key issue to be addressed at the recent WTO meeting, that of creating a link between trade and labour standards, and the issue of electronic commerce tariffs could prove to be just as volatile an issue.

The South African working group proposals will need to consider these inconsistencies before the release of the Green Paper in the first quarter of next year, and subsequent legislation at the end of the year.

Ngcaba's assertion that "we envisage a complete e-commerce Act with amendments to other laws where necessary." means that the government is intent on supplementing this growing business arena with the strongest possible regulation.

While shareholders in the local e-commerce scene would appear to welcome regulation of sorts, commentators are wary of the form this regulation would take.

Tariff imposition, for one, would be roundly rejected by the industry. According to ECNet MD Willem van Rensburg, such a move would impede strategic advance that have been made by local businesses into the global market, effectively cutting off economic productivity in a burgeoning industry.

Other commentators have noted the knock-on effect that such a move would have on investment, warning that foreign companies would be loathe to invest in even the traditional business sector when the scope for diversifying into electronic business is subject to fees that would not be encountered elsewhere.

Local businesses could also contemplate moving their commercial focus toward other less-regulated countries, even relocating their server within other national borders in an attempt to curb unnecessary revenue loss.

Before Friday's announcement, it seemed that government was aware of the tightrope that it needed to walk in order to see e-commerce benefit the country as a whole.

If the new Act is used purely to clarify existing ambiguities then stakeholders will be able to relax. The current legislation provides no definition of electronic commerce and the Customs and Excise Act of 1964 refers to "goods" in a way that could exclude products of electronic commerce.

In addition, the act does not address international delivery of goods over the Internet, say, in the case of downloaded software, or for that matter, most delivery channels for electronic transactions.



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