US tech giants make money from South African consumers. It’s time for South Africa to tax them. Every time you click an ad on Instagram, buy a subscription on Netflix, or boost a post on LinkedIn, money leaves South Africa.
It flows invisibly through fibre-optic cables, settling in low-tax jurisdictions in the Caribbean. This is not news. What is news, however, is that SA is currently standing at a fiscal crossroads, deciding whether to wait politely for permission to tax these profits or to take what is owed.
For more than a decade, the global tax system has been playing catch-up with the digital economy. The rules we use were written for a brick-and-mortar world a century ago – an era of steamships and telegraphs. Back then, you couldn’t just beam a service across a border; you had to physically lay a wire and build a receiving station on the country’s soil to do business.
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The tax rules reflected this reality: a company had to have a factory, a branch, or a “permanent establishment” in a country before that country could tax its profits. In the digital age, this physical requirement is obsolete. The delay in modernising these rules is costing us dearly.
While we wait for the US Congress and European parliaments to agree on a global consensus (the so-called “Pillar One” solution), the digital economy is accelerating. The rise of AI and automated services means the disconnect between where value is created (by our data and eyeballs) and where it is taxed is growing wider. TheDavis Tax Committeewarned us in 2018 that ring-fencing the digital economy is difficult.
But the alternative – doing nothing – is fiscally irresponsible. South Africa faces a budget deficit that refuses to close, yet we are leaving billions on the table. A digital services tax of just 3% could conservatively raise upwards of R3.5-billion annually.
To put that into perspective, that is enough to fund the construction of three new district hospitals every year, simply by asking Silicon Valley to pay a small toll on its extraction of South African wealth. Instead, we keep squeezing the local tax base until it squeaks. Personal income tax is maxed out; corporate tax rates are under pressure to remain competitive.
Yet, we leave the “super-profits” of the digital giants largely untouched by corporate tax because we are afraid to upset the diplomatic apple cart. They argue, quite loudly, that American markets should not be open to foreign goods that undercut local industries. They slap tariffs on steel, aluminium and vehicles, claiming the sovereign right to protect their economic borders and collect revenue on imports.
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