With revenue sources on steep decline due to the ravaging pandemic, there is a call for African revenue authorities to tax the digital economy in order to close funding gaps.
Leading this advocacy for revenue mobilisation is the African Tax Administration Forum (ATAF), the continent’s sole tax advocacy organisation.
ATAF developed a Suggested Approach to Drafting Digital Sales Taxation, which was virtually launched officially last Wednesday as a guide.
The ATAF Secretariat and its Cross-border Taxation Technical Committee developed the Suggested Approach document aimed at helping African countries to implement digital service tax to tax transactions of highly digitalised businesses. Already some African countries such as Kenya, Zimbabwe and Nigeria have enacted digital service tax laws and are implementing them, as others are weighing options.
“This Suggested Approach is intended to provide African countries with a suggested structure and content for their legislation and possibly the regulations.
“It also provides a framework that draws from the various DST (digital service tax) legislation enacted in other jurisdictions but adapted to meet the specific challenges faced by African countries,” said ATAF in a statement after the launch.
“Besides enabling countries to charge tax on digital transactions, a DST may have the benefit of building public confidence in the fairness of the tax system as there has been public concern about under-taxation of multinationals especially the high-profile digital companies that do not have a physical presence in countries.
“This may enhance tax morale in African countries and boost the underlying voluntary tax compliance.”
Tax experts have noted that digitalisation often enables multinational enterprises (MNEs) to carry out business in African countries with no or very limited physical presence in those countries. This trend has increased due to the use of digitalised services necessitated by the Covid-19 lockdowns that have seen most MNEs with physical presence in a country close their premises and move to online trading. The trend makes it difficult for countries to establish taxing rights over the profits the MNEs are making from those business activities.