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The Challenge of Digital Taxation in Africa

The Organisation for Economic Cooperation and Development (OECD) released the Base Erosion and Profit Shifting (BEPS) Action Plan 1 Report in 2015. The report identified an increasingly digitising world as a key focus area. the report theorised that as the global economy was becoming increasingly digitised and that it would become increasingly difficult to ring fence local economies (OECD, 2019).


In 2018 the Task Force on the Digital Economy, a working group mandated by the G20 Finance Ministers compiled and delivered an interim report titled Tax Challenges Arising from Digitalisation. The interim report was set to be finalised in 2020 with an update in 2019 (OECD, 2019).


The updated interim report of 2019 calls for a two-pillar approach to address the issues of a digitalising economy (International Tax Review, 2019):


1. The first pillar dealt with allocating taxing rights to a jurisdiction where value is created by business activity within the jurisdiction; and

2. The second pillar addresses the need for a global minimum taxation.

The International Centre for Tax and Development (ICTD), an independent research network focused on building effective taxation models in Sub-Saharan Africa, postulates that the digitalising economy in Africa tempts governments to impose taxes on services such as mobile money as a quick and cost effective means of raising money. However, as put forward by the ICTD, such steps could limit the adoption of fintech solutions and thereby inhibit financial inclusion and furthermore such measures tend to disproportionately affect poorer communities (Chronicle, 2019).


Dr Martin Hearson of the ICTD has commented on the OECD approach as "a negotiation among powerful economies, and for that reason may not have such a radical impact on lower-income countries" Dr Hearson concludes that there will be a real cost-benefit dilemma for developing countries (in taxing global digital operators), but the most sustainable outcome for them will be one that maximises gains in the short term while leaving space for innovation in the medium term" (ICTD, 2019).


Africa as a whole seems to be focused on capitalising on the digitalising global economy. This year 450 experts and policy makers in Africa met in Uganda for the 4th International Conference on Tax in Africa with the theme "Innovation-Digitalisation and Harnessing Technology to Improve Tax Systems". The Delegates drew special attention to the need for a collective regional position paper (Chronicle, 2019). 


It is clear there is a need to address the demands of the 21st Century and the digitalising global economy, especially in the developing world. Some countries like Kenya, Benin and Zambia have taken steps towards taxing digital service providers (albeit controversial), but there remains no regional consensus on how to handle taxation in the digital world.


http://www.oecd.org/tax/beps/policy-note-beps-inclusive-framework-addressing-tax-challenges-digitalisation.pdf


https://www.chronicle.co.zw/research-body-warns-of-digital-taxation-risks/


https://www.internationaltaxreview.com/article/b1hqpxyr75mfrq/oecd-releases-updated-proposal-on-digital-era-taxation


https://www.ictd.ac/news/developing-countries-risk-being-left-behind-global-tax-reform-researchers/

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