This archive report was first published on 8 November 2019.
Published on November 8, 2019, by Robert Ssuuna, a policy lead-tax at Tax Justice Network Africa.
As Benjamin Franklin once said, "Our New Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and Taxes." However, with the advent of globalization, the rules for trade, investment, and taxation have undergone significant changes.
One thing that is certain in today's world is the influence of technology on the global economy. The digitization of the economy has brought about new opportunities and complexities that African countries need to be aware of.
Firstly, the ability to supply digital services without a physical presence in a particular jurisdiction has created new challenges for taxation. Secondly, the heavy dependency of digital businesses on intellectual property has raised concerns about the value generated from user participation in digital activities.
Lastly, the mismatch between the current value assessed by governments and the actual value generated from user participation in digital activities on some platforms has created a need for regulatory reforms.
Regulatory reforms are necessary to harness the benefits of digitalization and technological advancements. This includes adjusting taxation rules to ensure that adequate revenue is generated without stifling innovation.
African countries need to fully understand and appreciate how the digitalized economy operates in order to tax it better. This requires safeguarding the sovereignty of African jurisdictions in designing regulations that protect their taxing rights.
Indeed, as the momentum for a global consensual solution grows, other countries, including members of the OECD, have embarked on unilateral solutions to taxation of the digitalized economy. For instance, the equalisation levy in India, the digital tax proposals by the European Union Commission, Digital tax on big tech companies by France, Web tax in Italy, income tax on providers of services on digital platforms by Slovakia, the internet tax proposal in Hungary, among others.
These actions not only cast doubt on the practicality of the suggested solution but also increase fragmentation of the international taxation system. Amidst such challenges, African countries are left at a crossroads.
Some African countries are already taking unilateral measures, including reviewing domestic rules to expand the definition of Permanent Establishment in Ghana, taxation of Over The Top Services in Uganda, taxes on mobile money transactions in Kenya, and the recently proposed 5 per cent tax on digital transactions in Nigeria.
As efforts to expand the mandate and sphere of influence by the UN Committee of Experts on International Taxation Matters gain momentum, there is a need for an African tax co-ordination platform dedicated to addressing emerging tax challenges and shaping African positions on tax reforms at the global level.
The co-ordination platform should increase support and co-ordinate efforts to increase investment in research and development, automation of revenue administrations, and the entire government to allow ease of exchange of information to harmonise policies and messaging targeting taxation of the digitalised economy.
