Google comes under fire over taxes in South Africa

The search engine back in the spotlight over tax contributions as South African revenues are collected in Ireland.
Written by Adam Oxford, Contributor

Google is under fire over tax contributions again, this time in South Africa where several news organisations, led by the country’s largest and most influential media group, have attacked the company over its revenues from online advertising.

The row started when 24.com, the online publishing arm of the Naspers group, released a statement in which it claimed R140m ($14m) was lost in tax revenues from online advertising because Google trades in South Africa via its Irish subsidiary.

24.com's CEO, Geoff Cohen, said that this puts its South African rivals at a disadvantage.

"In the digital age, we accept that we compete with businesses from all over the world," Cohen said. "However, it is clearly wrong that, as we invest in building a taxpaying business employing hundreds of South Africans, we are competitively disadvantaged through aggressive tax-planning strategies of global businesses."

Cohen pointed out that although Google is registered overseas, it has a South African office and South African staff.

"The question to ask is whether this is fair. Google can offer a service in South Africa, but not pay local tax, while we have to."

Shortly after the initial statement was published, however, one of 24.com's sites, Fin24, followed up with an article quoting staff from other South African outlets expressing sympathy with the views, including the Mail&Guardian and Creative Spark.

"I admire Google as a technology entity and for the innovations it has created. As a search engine, it has literally saved the web. However as a business entity I have grave reservations about how it is operating in this country and others outside the US," Creative Spark’s Matthew Buckland told Fin24.

Google was quick to respond to the accusations, saying in a statement that it complied with local tax laws, as it does everywhere that it operates.

According to a recent report by PwC, online advertising spend is growing at a rate of 25.4 percent in South Africa, or almost double the global growth rate of 13 percent. As revenues from traditional print models dry up there are clear signs that the media industry is feeling tension.

Naspers, the sixth largest company listed on the Johannesburg Stock Exchange, is no stranger to controversy and accusations of market dominance. As well as owning most of the country’s best selling newspapers — including the Daily Sun and Beeld — the firm also operates website services ranging from fashion news to online shopping. It also owns Multichoice, the dominant satellite broadcaster, and the country's best selling magazine.

Through international holdings, it's also the majority shareholder in Tencent — the world's fourth largest internet company after Google, Amazon, and eBay — which specialises in mobile entertainment apps and messaging services QQ and WeChat.

Naspers share price, however, has more than doubled in the last year based on its successes in China and is now trading at R1,190 ($107).

As local technology site TechCentral has pointed out, this isn’t the first time that Naspers has attacked Google in this way. Naspers companies in Brazil and Poland have also been part of investigations into Google's behaviour.

The issue of tax, however, is a hot topic in South Africa at the moment as the government plans to introduce VAT on digital goods from 1 April, effectively bringing the market for apps and media downloads on smartphones into the tax regime for the first time.

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