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Taxing Africa's digital economy

We are back to normal programming. - Tefo Mohapi
August 12 · Issue #54 · View online
iAfrikan Daily Brief
We are back to normal programming. - Tefo Mohapi

I partly sympathise with African policy makers. Especially when it comes to OTT (Over The Top) platforms such as the popular social media platforms and instant messaging apps.
My sympathy is related to the fact that, as governments, they (ideally speaking) create the environment in which businesses can operate and hopefully thrive. To create such an environment requires deploying capital (tax revenue) towards building infrastructure (e.g. telecommunications) and deploying people to regulate such an environment. As such, ideally speaking, everyone who benefits from operating in that environment is supposed to contribute their fair share (tax) into the pot so that the business environment can be maintained and sustained.
President Yoweri Museveni's Uganda became infamous in 2018 by introducing a social media tax for users. Museveni said this was partly to curb gossip and the spread of malicious news.
Unfortunately, when it comes to multi-national OTT platforms and apps, many (if not most) of them do not pay tax in most of the countries they operate in. In most cases they only pay tax in the USA and one other European country.
As an example, let’s take a look at Facebook, Twitter, Google and Uber. All three are incorporated in the USA, and their USA corporation handles all matters relating to users based in America and revenue generated in America. Thus, they pay part of their tax in America (to clarify, I am excluding VAT and employee’s income tax and speaking specifically about tax on revenues). On top of having a US corporation, they will also typically have a corporation in Ireland, and in the case of Uber, in the Netherlands. These European corporations are typically responsible for all users and revenues outside of the USA and it follows that they then only pay tax in Ireland or the Netherlands for all revenues generated across different countries around the world. I am simplifying so as to keep this brief and easy to understand.
As you can see, and why I simply sympathise with African policymakers, as a government you are deploying resources to create an environment in which the said businesses can operate in and yet when they generate revenues thanks to this business environment, they do not contribute back to the pot to sustain and maintain the business environment. However, this is where my sympathy stops.
As we’ve witnessed over the years, instead of finding ways to tax the revenue generated by these companies, African authorities so far have resorted to taxing the users of these services. We’ve observed several countries implementing an OTT tax (in some cases known as social media tax) where, over and above purchasing Internet access data bundles, users are required to pay a fee before using social media or instant messaging apps. he same applies in the case of e-commerce where, because the revenue goes to a foreign country, authorities, instead of taxing the companies, are now looking to implement an extra online purchasing tax on customers.
Screenshot of menu presented to mobile users in Uganda prompting them to pay "OTT Tax"before they are able to use OTT services.
Unfortunately such taxes will unlikely change things but rather will force users to find creative ways to bypass them such as using a VPN service or in the case of e-commerce, using a forwarding address. One really has to wonder why governments are not interested in taxing the Internet companies directly.
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