An income tax proposal for inbound electronic services

M.Com.Abstract: Without a doubt the digital economy has revolutionised traditional ways of conducting business around the world. The advent of mobile telephony, mobile internet access, the smart device and other cutting edge technologies have brought about a rebirth of certain existing industries and have ushered in the emergence of entirely new types of business bringing customers, products and services together in a global virtual space. This has enabled billions of consumers across the globe to connect and interface seamlessly in a rapidly expanding cyber marketplace, without actually ever physically meeting each other. Ageing global tax systems originally designed for application in a less sophisticated non-digitised business world have not kept up to date with technological advances and have as a result become ineffective in taxing the profits of business, which is transacted through the internet and in the cloud. International organisations like the G20 and the OECD as well as many governments are presently investigating ways to tax the profits from cloud and digital content in the most efficient and effective manner. The challenge is to improve tax policy and appropriateness, without impeding economic growth at a micro and macro level and without giving certain jurisdictions disproportionate taxing rights to the detriment of others. This minor dissertation considers the appropriateness of current South African tax legislation for taxing inbound (transactions where profits leave South African shores) electronic services in South Africa. Focusing on online sales and purchase transactions, this minor dissertation briefly outlines the development of digital technology and the emergence of the developing digitised economy. The minor dissertation highlights the challenges in taxing profits in the digital economy and views these challenges from a South African perspective. This minor dissertation analyses the relevant current South African legislation, exploring possible alternative solutions to the identified challenges. The research confirms that current South African tax legislation is not adequate, highlights the deficiencies and proposes a feasible solution for South Africa