The Truth About Taxation In The Digital Age
E commerce tax regimes in Africa
It is a common trend for the taxmen to run where people caucus, to impose tax responsibilities. Everyone seems to converge online and governments are looking for new methods for taxing e commerce. Europe is now working on a digital tax law for the tech giants that should be out before the end of the year. France has already committed to push through it alone; it will start levying taxes on the Google, Amazon and Facebook starting 1st January 2019.
Digital tax trends in Africa
Most of the e commerce tax in Africa are treated as sin-tax — meant to reduce consumption of these products. But some are just genuine means to boost the countries’ coffers.
Kenya’s new tax in the digital economy arises from its 2018 budget crisis. The government tried new tax legislation for fuel consumption that led to public uproar. In a twist, the new Finance Act 2018 reduced fuel tax by 8% and increased excise duty on Internet Services from 10% to 15%. This tax effected the increase of household broadband by more than 5USD. Mobile Internet promotions were also discontinued. Most of which were used by the younger population, who could go without a meal to afford Internet bundles.
Kenya’s income revenue is only used for its recurrent expenditures. The country heavily relies on foreign loans for its development projects. Kenya has a population of 47Million, of which 19.6M are registered voters (citizens in the tax bracket), 7.8Million are registered on the government’s itax platform for filing returns, and only 2.1Million file returns annually. This means that an average Kenyan worker takes care of 3 other Kenyans, let alone the cost of devolution and the expanded civil service.
Internet penetration has grown very fast in the last 7 years. Availability of cheap smart phones and the stiff competition of mobile services have made Internet services relatively affordable. Broadband penetration is also on the rise, especially in the urban areas. This has really promoted self employment. The cost of setting up and running online business is very low; people coalesce in online groups of buyers and sellers who either use their homes as shops or occupy very small shared spaces in the CBD, that are only used as collection points. The challenge with this is that they are not registered to pay taxes and the tax burden is heavier to those registered. Even if the government is to tax them, it will only increase unemployment — as good fraction of the unemployed are graduates who have been forced into these businesses as alternatives to employment.
With the wave of digitization, the Kenyan government has directed some of its essential services online. Application of passport and driving license can only be made online. This implies that increased internet access cost affect how the disadvantaged communities access essential public services.
Uganda’s Social Media Tax Bill aims at ‘controlling gossip’. The government strongly opines that it’s citizens waste too much time on social media spreading fake news, and that the tax would divert their time to more useful activities. The tax is implemented through the service providers. They are expected to deduct daily charges of 0.05usd when their subscribers check in to the WTF platforms(Whatsapp, Twitter and Facebook). In effect, Ugandans downloaded VPNs to avoid this tax; and the government fell short of its target to raise 6.6 million USD. Though it managed to collect 5.5 million USD in the last quarter.
Uganda’s digital economy has grown dramatically despite the country being landlocked. It was one of the first African countries connected to the internet, through satellite, and transmitted through fiber backbone infrastructure. Uganda’s government has expressed unforeseen challenges of traditionally administering taxes to products that are increasingly acquiring digital value.
However, Uganda has also been the first African country to come up with controversial Internet policies. It was the first to carry out an Internet shutdown, and the first to directly impose taxes in social media users. Ugandan social media users have tormented their government over the elections, over the extension of presidential term limit and over the arrest of Bobby Wine.These online protests have made the government come out strongly on the controversial Internet policies — and other African countries have not shied from following suite.
Tanzania introduced 93USD license fees for content creators in an effort to curb hate speech and fake news. These have included; bloggers, v-loggers and website owners. In effect, most content creators have discontinued content creation in for their platforms. Mikocheni Report, an award winning blog on google’s blogger platform had already bid its audience farewell.
The county has previously come up with controversial Internet policies to keep local revenue and control online content. For instance, Tanzanian business and civil society are legally required to use country code domains for their web presence. The founder of Jamii forum(a whistle blowing civil society)had once been arrested for having websites that were registered in generic domain names.
Zambia also introduced an Internet tax similar to Uganda’s in an effort to protect domestic telecom companies. The government argued that the increased IM and Internet calls over Whats-app and Facebook threatened the existence of local communication companies. Zambians will be charged a daily rate of 3 US cents through their telecom companies when they call over the Internet.
Taxing the Internet Giants
There has been a lot of international dialogues about taxing the Internet Giants. Africa has been left behind because the giants claim they dont get much revenue from the continent. The Internet giants are registered in their home countries and in countries with attractive taxation rates such as Ireland. Their offices in Africa are only registered as subsidiaries, which are not liable to the actions of their parent companies. Taxing them, or holding them responsible for their actions has been a challenge for African counties. Further, Whats-app and other giants have argued that they don’t earn revenue from Africa that can contribute to tax. So African governments have been left with options that end up burdening their own citizens. Yet Africa has a significant user base for these platforms. In fact, same to Europe which is already coming up with a 3% tax on the Giants’ revenue.
The ugly truth is that most African countries see the Internet as the source of their problems and misunderstanding between them and their citizenry. Information is no longer regarded as an important tool and the governments will not hesitate to increase taxes or to shut down the Internet whenever they get the chance and the mechanisms.
Another truth is that Africans form a significant user base of the Internet and its popular websites. They produce a lot of data that the Internet giants use for targeted advertising, and they pay for data that is also consumed in trafficking the Advertisements. In turn, these platforms should also be directly taxed to develop the continent.
In addition, digitization is eroding the traditional tax base. People are moving to Facebook and Google to advertise their products. The government income from media advertisements have drastically gone down. Local media companies are also struggling to exist with the stiff competition from citizen journalism. This has undermined their efforts towards independence from political forces.
Call for International Cooperation
There is no global consensus on fair tax policies for the digital economies. African countries are left to experiment and figure out their own taxation mechanisms; mostly implementing what their counterparts have done. We need to have more structured International dialogues and cooperation to avoid double taxation and threats to further the already existing digital divide.
