Opinion PC

On Tuesday the South African Rand comes to Steam, and so does VAT

Steamand paying in Rand.jpg

On Tuesday, November 10th, the South African Rand comes to Steam. While we are delighted with the news, Gaben is concerned. Why? Because that means Value Added Tax (VAT) on digital goods kicks in. Yes, an extra 14% added to your Steam purchases. 

Steam has shielded our purchases from the tax man, even though we were supposed to pay 14% VAT on all digital purchases since - since long ago. Because Steam is a digital service, there are no tax officials to police it, and we've been happily avoiding paying VAT. With the exchange to Rand everything changes. If I understand the South African VAT on digital tax policy correctly, then Steam will now have to register with the South African Revenue Services as a VAT vendor. You can of course claim VAT back from SARS, but only if you're a registered VAT vendor and if you purchase games for business purposes.

Why SARS is enforcing VAT on digital goods

When we first reported about VAT on digital goods, Nicholas Hall, co-founder of Make Games SA and lawyer at Michalsons explained: 

"The truth is, VAT has always been meant to be implemented on digital goods. Currently, if you buy a game on Steam, you don't pay VAT. But you're actually meant to be an honest person and inform SARS that you've done this and then pay the 14% due on it. What the regulation is doing now, is changing the onus on whose responsible for that, because nobody does it." Hall elaborated by saying, "All this regulation is doing is changing who will be collecting that."

Last year SARS explained the motivation behind VAT on digital goods:

"The current application of VAT on imports does not lend itself to the effective enforcement on imported services or e-commerce where no border posts (or parcel delivery agents, e.g. the  Post Office) can perform  the function as collecting agents as is the case with physical goods.

The net result is that the local consumers can buy imported digital products without paying VAT. This outcome not only places local suppliers of digital services at a competitive disadvantage (compared to suppliers from abroad) but also results in a loss of revenue.

The VAT legislation was amended to bring the digital economy more comprehensively into the VAT net and provides for the Minister to issue Regulations prescribing imported services that will be covered by the new electronic services definition in the VAT Act. These imported services will include the supply of e-books, e-music, e-films, software, images, games and games of chance, information system services, internet-based auction services; maintenance services, educational services, and the supply of an internet-based auction service facility." Source

I caught up with Nicholas again to further explain what the Rand coming to Steam means for South African gamers and game developers.

What it means for gamers & game devs


Images from Nicholas' Steam Account

So on Tuesday VAT kicks in?

"“VAT is not guaranteed at this point, but I'd say it is highly likely though."

Could SA Steam users change their location to another country and thereby not pay VAT?

"They'd pay the VAT of whatever region they set it to. So, if they set to UK for example, then they'd be paying 20% VAT, Poland 23%, Spain 21%, the US will depend on the state. If they change it to another country, all that's going to change is that the amount will be in dollars, and the tax will no longer be 0.00 (as shown in image). Though adjusting your region is against Steams terms of use."

How will the Rand on Steam affect SA gamers?

"It's possible that VAT will be passed onto the Devs in that the price will remain the same, but Valve will deduct the VAT from the store price, and then take their cut. Meaning, the price for the consumer will stay the same, but the dev will end up taking less.

Though I see this as highly unlikely. It depends on how the calculation adjustment to Rand works. If they go: Dollar price as per current exchange rate, then consumers will be paying the VAT. It's all speculation for now, but I suspect we will see VAT being levied."

Nothing is certain but death and taxes.

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