Taxation of the Digital Economy: Is It Time for the Republic of South Africa to Be Direct?

Abstract

The purpose of this research report is to address the direct tax challenges of the South African source-based taxation framework, which are imposed by social media platform providers, who derive an income from the sale of South African user data and targeted advertising services. This imposition is created since digitalisation provides a non-resident social media provider with the ability to have an ‘operational scale without mass’ in South Africa, which undermines the international tax law framework's capabilities to impose South African income tax on the business profits so created. This imposition is further exacerbated by the fact that the current solutions proposed to address this inability rely on the requirement of payment derived from a South African user which is usually not required by the business models of participative network platforms. In terms of these business models, South African users of social media platforms are regarded as data subjects who in exchange for the free use of the platform, pay with their personal information. In addressing this problem, the conclusion provides legislative reform by proposing a virtual presence requirement which in addition, is not solely reliant upon the payment of a fee from a South African user