The Federal Inland Revenue Service (FIRS) and other African countries’ tax agencies are strategising to ensure owners of infrastructure investments in the continent are properly taxed, especially in the aspect of Value Added Tax (VAT).
Over a trillion dollars is slated for investment towards infrastructure development over the next 10 years in the continent. Speaking at African Tax Administration Forum (ATAF) technical workshop on VAT yesterday in Abuja, executive secretary of the forum, Mr. Logan Wort said the current digital economy around the globe presents new opportunities for revenue administration to feature innovation in system design for the collection. 2018 edition of Deloitte’s Africa Construction Trends report had indicated that as of June 2018, Africa had 482 projects, each valued at $50 million or above. In total these construction projects were valued at $471 billion. This was an increase of 53 per cent of the total value of $307 billion recorded in 2017. In 2018, the top three countries in terms of construction projects were Egypt, South Africa and Nigeria. Egypt had the highest recorded number of projects, totalling 46 and accounting for 9.5 per cent of African projects. In terms of value, Egypt also topped Africa, recording projects worth US79.2 billion. This accounted for 17 per cent of the continent’s value of projects. Despite the opportunities of digital economy, Wort noted that e-commerce changes the distribution of taxable activities; it poses challenges to the jurisdiction to tax income and alters the balance of taxing authority, and results in the erosion of countries’ tax bases. “E-commerce creates difficulties in the identification and location of taxpayers, the identification and verification of taxable transactions and the ability to establish a link between taxpayers and their taxable transactions, thus creating opportunities for tax avoidance,” he remarked at the 3-day event. As a solution, Wort said the Forum has commenced work on guidelines on VAT issues that will enable individual country collect all due VAT. “The taxation of cross-border digital transactions should preferably be done electronically and with minimal human intervention. A withholding tax mechanism by financial institutions through the implementation of a real-time (RT)-VAT system, offers this possibility,” he added. In his opening remarks, FIRS chairman, Babatunde Fowler said the use of technology is pivotal to the effective monitoring of Value Added Tax (VAT) collection in Africa. Fowler stated this yesterday at the African Tax Administration Forum (ATAF) technical workshop on VAT in Abuja . According to the tax administrator, many Africans now utilise various online platforms as their preferred means of shopping. He, therefore, urged African tax revenue agencies to begin to understand the digital system, adopt technology and begin to map out plans for the collection of VAT for online transactions. He also called on African tax revenue agencies to synergise their manual and digital operations to facilitate the collection of VAT on cross-border digital trade “We need to closely look at the taxation of digital goods and services. Increasingly, consumers are looking for products, services and goods online. “This forms part of the 4th Industrial Revolution, where our civilisation is moving towards digital platforms as a means of facilitating the day-to-day running of businesses and households. “It is imperative to understand how this will affect VAT as a tax and how best to mitigate any challenges,” he said. The Organisation for Economic Co-operation and Development (OECD) BEPS Action 1 points out the challenges the digital economy poses to international taxation and the OECD has made recommendations in this regard. These include: the need to develop rules to address the tax challenges of the digital economy; identification of the main challenges of the digital economy; holistic approach is required, which covers both direct and indirect taxation and specific challenges include the ability of a company to have a significant digital. Others are: presence in the economy of another country without being liable to taxation due to the lack of nexus under current international rules and the attribution of value created from the generation of marketable location-relevant data through the use of digital products and services