African Nations Have Finally Awoken To The Digital Tax Dash

By  |  July 12, 2020

Digital taxes are all the rave these days. All over the world, governments are actively pursuing legislation that will see them collect taxes on the revenue made by companies responsible for some of the digital services available in their respective countries. And African governments are beginning to get in on the act.

And why wouldn’t they? In 2016, the global digital economy was valued at about USD 11.5 Tn, single-handedly accounting for 15 percent of global GDP that year. By 2026, the digital economy is forecasted to make up 25 percent of the world’s GDP.

With numbers like that, the industry is a taxman’s goldmine. That’s why governments across the globe want a share of that revenue in the form of taxes. 

Digital taxes are especially designed to drag some of the world’s biggest tech companies, like Apple, Google, and Facebook, into local tax nets. The idea is to shift taxation to the places where users of online services are located, rather than the usual approach of focusing where companies base their regional headquarters or book their earnings.

Such legislation typically targets revenue rather than profit, as this helps to block techniques used to push earnings into lower-tax jurisdictions. 

It was exactly a year ago when France became the first country to impose a digital tax after plans by the European Union (EU) to develop a harmonised system fell through.

Although it attracted some backlash from the US government especially, France’s 3 percent levy seeks out companies with at least USD 845 Mn in global revenue and digital sales of USD 28.2 Mn 25 in France. Although it affects about 30 businesses, most are American companies, hence the reprisal. The list also includes Chinese, German, British, and even French firms.

For the longest time, tech companies like Facebook and Google have escaped paying taxes in many countries mostly because they do not have physical offices in those locations. 

However, these companies have become juggernauts in the space, basically changing the world as we know it. With moves like that, they have unavoidably caught the eye of many national governments who are now looking to get a piece of their revenues.

A list of countries that have either adopted or are considering digital taxes would typically include names like Austria, Brazil, the Czech Republic, France, India, Indonesia, Italy, Spain, Turkey, and the U.K. 

But beyond those, many countries in Africa are starting to make notable strides in the same area, even though years of lukewarmness on the matter sees them currently playing catch up.

In Africa where the digital offerings from companies like Facebook and Google are especially popular, efforts are being made to harmonise tax collections from all manner of digital services.

Countries like South Africa and Angola are among African nations that already have digital tax laws in place. 

While South Africa requires digital services providers in the country to hit ZAR 1 Mn in sales in the country before they register for VAT, Angola charges a VAT of 14 percent for all digital sales, mandating digital service providers to register for VAT as soon as they have their first Angolan customer. 

In Uganda, it’s quite a different ball game. The country has a tax in place for access to OTT services, including social media platforms. This has been in place since 2018, though the levy is actually drawn from the pockets of Ugandan nationals, not the digital companies themselves.

Most recently, Nigeria and Kenya have stepped into the ring. The Nigerian Communications Commission (NCC) has created a Digital Economy Department, mandated to implement programmes and policies aimed at supporting and promoting the national digital economy agenda of the Federal Government. This is part of a wider plan that will see the country forge ahead with its digital tax plans.

Similarly, the Kenya Revenue Authority (KRA) has set up a new arm to keep tabs on all digital transactions carried out in the country, with the aim of taxing the service providers.

Africa has a staggering youth population and this has helped to fuel the adoption of digital services and the development of the digital economy across the continent. 

According to a UN estimate, almost 60 percent of Africa’s population in 2019 is under the age of 25, making Africa the world’s youngest continent.

The continent’s youth population is estimated to be 830 million individuals by 2050. By virtue of this youthful population, one out of four workers worldwide may be African by 2030, according to McKinsey & Company.

All these could imply huge opportunities for the growing digital economy on a continent where digital services are becoming increasingly popular among a rising demographic of young, tech-savvy individuals.

Hence, it is expected that many more African countries will, in the coming years, draw up and adopt digital tax legislation, so as to tap into what seems like a potential cash cow.

Featured Image Courtesy: Safaricom

Most Read

Tracing The Rapid Rise Of E-Mobility in Kenya

The global automotive industry has shifted significantly towards electric vehicles (EVs) in recent

Nigeria’s Crypto Traders Take Business Underground Amid War On Binance

Nigeria’s heightened crackdown on cryptocurrency companies over the naira’s slide is driving the

Kenya Is Struggling To Find Winners After Startup Funding Boom

Kenya, the acclaimed Silicon Savannah, is reeling from turbulence in its tech landscape.