Traditionally
there are two methods of taxation, resident based and source based. On the
first method, residents pay tax and contribute towards society in the place
where they are residents while in source based, tax is paid to contribute to
the society where income is sourced. Digital tax administration is electronic
filing of tax returns. With the digital economy, it’s possible to get a user in
one country, making use of a platform in another country, where work is done in
that platform from someone in another country and thus the question where is
the value being derived? Is it where the user is, the platform is or where the
value added is done? (Kristen, 2019). This is the major problem in Africa as
most of the digital economies do not have a physical presence in such
countries. This seems to complicate the digital permanent establishment
concept. Taking an example of Congolese famous Lingala music which is streamed
online, do we tax where the music is being listened to, or the provider of the
service.
Problem
statement
Developing
countries including Africa are currently dealing with the way digital
technology is changing global economy and the growth of these very large firms
like Google, amazon and Facebook (KPMG, 2019). There is no universal consensus
on how to go about digital taxation. Over the globe, individual governments are
working hard to come up with ways of taxing those companies effectively and
thus are sitting on round tables negotiating amongst themselves on the best way
to tax them. These ways of taxing digital economy are new, coming
at a time when electronic exchange of goods has crowded the market and thus the
concern whether the tax administrators are ready for such a shift in the market
and if so, if Africans ready to meet the challenges. This essay seek to
address this by discussing the voices of different citizens and the view of
Kenyan government towards the tax challenges of digital economy.
Methodology
Descriptive
information was collected from nationals of various African countries and tax administration
of such countries. Convenience sampling was used to collect data using short
structured interviews from those interacting or with knowledge of tax administration
system of African states.
Key
findings
The Kenyan
government on Kenya Finance Bill 2019: Taxation of digital economy proposed to
tax income accruing through digital market though it wasn’t clear how
international digital platforms with no physical presence in Kenya could be
taxed. The Kenya revenue authority set to tax app developers downloaded in
Kenya and their resultant value. In this case, who is to pay the tax?. Though
the tax administration looks at this as a way of increasing tax revenue,
Kenyans look at it as a way of killing and burring innovation. It is seen to
negatively affect the growth of the economy. Google, the most used platform in
Kenya warned that digital tax could raise the cost of living and bring about
price wars. For a non-resident with an app used here, what they are likely to
face is double taxation, VAT paid on downloads, and other taxes under section 3
of the Income Tax Act.
Interviews
According
to Adewale, a Pan African University Political Scholar from Nigeria, taxation
of digital economy shouldn’t be African’s goal when she hasn’t managed and
controlled the digital taxation of the traditional economy with only few
countries like Kenya, Rwanda and Ghana trying to effectively implement
electronic service delivery. If digital economy is to be taxed, mainly the
multinationals, then the economy has to be ready to bear the consequences,
which politically may not be positive as the African perspective has put it.
According to Maina, from Kenya, Kenya as a country isn’t practically prepared to tax the ‘away digital economy’. The
question he possess is, who is going to bear the cost of this new taxation, is
it not the same consumer who pays tax inform of VAT and PAYE? Isnt that enough? If the platforms decide to
evade the tax, has African countries come up with a method of tracking the evaders?
Implication
of the findings
The
African countries, though aspiring and thirsty to grasp the tax revenue from
digital economy is not yet prepared for such a move. The countries, each has
not yet piloted the digital economy taxation in their own jurisdiction, and
seen its impacts before slapping digital multinational companies like Amazon,
Facebook among others with a tax blanket for electronically operating in such
borders. From the findings gathered from Kenyan tax authority and various
scholars from all over Africa, the African states are not yet mature to
exercise double taxation on multinationals and if that is implemented, taxing African
countries may end up losing revenue collected in the status quo and probably,
get into price and trade wars mostly with multinationals. Thus the challenges
faced by digital taxation are significant for a scholar and a tax man to ignore
and unless we are prepared, the move is likely to end in win-lose situation.
Key
implementable recommendations
The
African tax administrations should pilot the digital taxation approaches they
each have picked on their own nations, their own digital platforms, to the
natural residents of the country before bringing the multinational digital platforms
on board. And again, the African tax administrations should be trained on the
best way to capture tax from these platforms before the concept is implemented
in the continent.
More in-depth information will be posted soon.
Reference
KPMG,
(2019) OECD: Update on tax challenges arising from digitalization of economy
Kristen C,
(2019). Taxing the Digital Economy-Why is Africa not getting its fair share?
Owino, J.
(2019). KRA looking to bring digital economy into tax net
