Time for Online Companies to Pay Tax In Africa

Online companies like Facebook, Google and Netflix  have managed to have an edge over how business is done and Africa has been getting the short end of the stick. Is it now time to create an even playing field that gives traditional businesses a chance?

In November last year, South Africa broadened its value added tax (VAT)  base by including all electronic services that are supplied to the South African market. France has also just passed digital services tax targeted at Silicon Valley. Is it time that African governments consider revamping their tax systems to accommodate for the evolution in modern commerce? In Nigeria, companies such as Jumia, Flutterwave, Andela, and Cowrywise have pretty much grown and shaped the digital landscape away from the taxman’s radar. This is not for long though. The Chairman of Nigeria’s Federal Inland Revenue Service confirmed this in an interview with Premium Times Newspaper in which he revealed that the country is currently working on a solution for taxing the digital economy. As it stands today, most large technology companies have to pay tax in countries in which they operate due to lack of any physical presence. Therefore, companies such as Netflix do not pay tax the same way a company that offers a similar service physically such Multichoice’s DSTV does. In his maiden budget presentation in November last year, Zimbabwe’s Finance Minister brought up the issue. In his statement, he proposed to extend the scope of revenues deemed to be from a source in Zimbabwe for tax purposes to include amounts received by or on behalf of a radio or television broadcaster domiciled outside Zimbabwe or an electronic commerce operator domiciled outside Zimbabwe.” Such a move was seen as a direct target to companies such as Netflix and Youtube which are becoming increasingly popular alternatives to traditional broadcasters. Nigeria has tried in previous years to ask local partners to withhold tax on revenues that are paid to non-resident companies. However, they met resistance due to the lack of clarity within the legislation. Considering that most of the payments are paid electronically, the cost and means of administering such a tax will be relatively efficient. The tax authority may lay the burden on banks to withhold the portion of the tax that is owed to the government. This will not need foreign companies to then remit payments made from Zimbabwe as it has already been deducted the moment the transaction is effected. Whilst most European countries have seamlessly adjusted their tax systems to include VAT for sales made online, most if not all African countries are still lagging behind. Therefore, one can buy goods through a platform such as Ali-Express without having to pay the same VAT they would have been subjected to if it was from a local company. Is it an unfair tax or levy? Companies that also offer services such as advertising do also pay VAT which a local services company may have to pay in the country in which they are based. This then puts them at a disadvantage compared to their foreign counterparts selling the same product or service. It favours expanding a foreign economy more than local companies. See Also: Facebook Introduces Local Language Coverage to Combat Fake News in Africa Paul Martin, UK head of retail at KPMG, said: “The digital services tax . . . holds the greatest potential to rewrite how the retail game is played. Online marketplaces have often been able to rise above the problems faced by traditional legacy players or independents.” Do African countries have the muscle to enforce the tax against online companies? The Trump administration has responded to France’s introduction of the tax levy against online companies with its usual song of tariffs and retaliation. They have promised to make an investigation on whether the tax is discriminatory and restricts American commerce. Whilst it has every right to look at how the tax may harm American commerce, the Americans tend to look the other way about the effects of the actions of online companies on other economies. The small retailer in Harare is already at a disadvantage, the local company in Zimbabwe which is subject to taxes that the U.S. giants are not subject to is not able to compete at the same cost. Dave Lee, BBC North America technology reporter commented on the issue and agrees that the overhaul on the global tax system is now overdue. Whilst France has been left exposed, it is hoping that more countries can be rallied to its cause. EU-wide adoption failed as countries such as Ireland did not come on board as they have managed to lure tech companies to set up their European bases in the country. However, it is not every country that has had this advantage. A move by a powerhouse such as France offers hope for African countries who are looking to move in the same direction. It can be the opportunity to bring the issue for discussion on a global scale and allow both sides of the aisle to find a consensus.


Source: Dey there