African Tax Bodies Struggling to Tax the Digital Economy

Nairobi, Kenya: Uganda Revenue Authority Commissioner General Doris Akol has appealed to tax bodies across the region to cooperate in devising ways of ensuring that virtual foreign firms pay their fair share of taxes, arguing that it was not fair for these firms to make so much money from local economies without paying tax.

Akol, who was speaking at the 7th Pan African Conference on Illicit Financial Flows in the Kenyan Capital, Nairobi last week, noted that enforcing tax compliance of these companies was difficult because tax authorities are still trying to define where taxable value is added in the digital economy.

“It is difficult to identify who is the creator of the value, or who is its beneficiary. This is where we need to draw lines – deciding the creator of value from its beneficiary and who of the tow should be taxed,” she said.

Akol, however, argued that African tax bodies would no longer tolerate the excuse of the absence of permanent residence of these companies as a reprieve from tax.

“We need to move beyond what we know and start thinking about identifying new parameters if we are to tax digital companies operating in our countries. This means that we must start taking data seriously and harnessing it for that purpose,” she said.

The conference organized under the theme; “Taxing Intangibles, Financial Technology (FinTech) and the Digitalised Economy” sought to explore emerging economic trends and opportunities for domestic revenue mobilization in Africa, and drew close to 1,000 delegates over the course of 3 days.

Giving the example of companies like Uber, Amazon, and Facebook, the URA boss said “You find that payments are being paid in servers in Thailand, and goods dropped by drones in South Africa. We need to think fast on how best to handle these new dynamics in global transactions.”

Re-echoing Akol’s remarks, Jane Nalunga, the Director for South and Eastern Africa Trade Information and Negotiation Institute (SEATINI) Uganda country office also noted that with the globalization and digitization of business processes, tax administration was becoming ever more difficult, and that tax bodies need to cooperate to cope.

“There has always been tax evasion and tax avoidance, but the situation is getting worse with the advent of the digital economy. Now it’s a continental emergency and we must get together as a continent to build capacity to plug the leakages,” she said.

In 2016, a committee led by former South African President Thabo Mbeki found that Africa loses approximately $50billion in illicit financial flows from the continent, largely through tax evasion and avoidance in form of transfer pricing, use of tax havens and off-shore banking. The same committee estimated that the continent could have lost nearly $1trillion dollars in such illicit financial flows, over the last 50 years.

“Unless we address this ‘bleeding’ as a continent, we shall remain stuck,” said Alvin Musioma, the Executive Director Tax Justice Network Africa(TJNA).

However, Logan Wort, the Executive Secretary of African Tax Administration Forum (ATAF) warned participants against the rush to tax the digital economy, noting that crippling taxes risked stifling its growth, yet it portends immense opportunities for the continent.

In July 2018, the Government of Uganda instituted a tax on over the top services, by which each person was required to pay shs.200 per day to access platforms like Whatsapp, Facebook, and Twitter.

However, three months after the introduction of the tax, the Communications regulator Uganda Communications Commission noted that not only had the government failed to hit its revenue targets from the tax, the tax had also led to a reduction in Uganda’s internet users by nearly 3million people.

“We need to think perhaps how African Governments can charge VAT or withholding tax on parent companies of these services like Uber, Facebook, and the like,” says Logan.

He noted that while Africa is represented by about 24 countries on the (OECD), they hardly say anything when there. “The question is, as a continent, what is the tax margin that we are capable of collecting from this emerging global industry,” he asked. “There is a need to purposefully regulate digitalization so that we enable domestic businesses to compete with international companies,” he added.

More about PAC

The Pan African Conference on Illicit Financial flows(IFFs) and Taxation is an annual event that brings together key stakeholders involved in efforts to curb IFFs and enhance domestic resource mobilization in Africa. The platform draws together actors from governments, civil society, international organizations, legislators, media, academia, and national campaigners to take stock of the current state of IFFs’ in Africa as well as progress made through global, regional and country-level initiatives to combat them.

This year’s conference was jointly organized by the African Tax Administration Forum, the United Nations Economic Commission for Africa and the Pan African Lawyers Union. Others are The African Forum and Network on Debt and Development, Financial Transparency Coalition, Global Alliance for Tax Justice, Action Aid, Oxfam, Coalition for Dialogue on Africa and Trust Africa.

The post African Tax Bodies Struggling to Tax the Digital Economy appeared first on The Cooperator News.

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