Africa demands taxing rights on digital economy

Faith Mazanhi, Zimra Commissioner General

AFRICAN countries should consider using political pressure through the African Union and the Pan-African Parliament to secure taxation rights to the fast growing global digital economy, which is largely controlled by multi-national companies headquartered outside the continent.

By Prosper Ndlovu

To buttress this effort, regional member states have been called to aggressively invest in information technology and necessary digital platforms to improve tax administration in addressing issues like taxpayer filing, payment and gathering of intelligence for risk assessment. 

Further, tax administrations have been challenged to invest in retraining their tax officers to equip them with the necessary tools to address the challenges of digitalisation as well as tackling other tax issues such as taxing the informal sector, extractive industry and agriculture.

These are among the key resolutions tabled by delegates at the close of the three-day African Tax Administration Forum (ATAF) High-Level Tax Policy Conference that was held in the resort town of Victoria Falls  last week. 

More than 100 officials from ministries of finance and African tax administrations, tax administrators and experts, parliamentarians, civil society, AfDB, OECD, UNECA and development partners from 21 countries attended the indaba, which ran under the theme; “Ensuring Africa’s Place in the Taxation of the Digital Economy”. The Zimbabwe Revenue Authority (Zimra) hosted the event supported by the African Development Bank (AfDB).

According to a communique issued at the end of the meeting, participants were agreed on the need to build a stronger nexus in Africa between tax policy and tax administration as a solid foundation towards sound domestic resource mobilisation. 

In their presentations, Zimra Commissioner General, Ms Faith Mazani, ATAF executive secretary Mr Logan Wort and chairman Mr Tunde Fowler, revealed that all African countries were facing challenges in taxing the digital economy due to a number of constraints. Therefore, the meeting stressed the need for the continent to work together towards a collective solution instead implementing unilateral interventions.

“Digital multinational enterprises easily operate with little or no physical presence, with no taxing rights for African countries. Therefore, we aim to push for more taxing rights to contribute to our domestic revenue mobilisation efforts,” reads the outcome statement. 

“African countries should also use political pressure through the African Union and the Pan-African Parliament to ensure that we have an African solution to taxing the digital economy. 

“The meeting noted that this would be facilitated through the support provided by ATAF as the leading tax organisation in Africa to ensure that the outcome of the discussions is favourable to Africa.”

Delegates noted that most of the global proposals on taxing the digital economy tend to sideline taxing rights for African countries. As such, African countries do not technically articulate their positions in the Inclusive Framework working groups and through the United Nations Committee on Tax. With this trend Africa fears losing the battle once the global rules are developed.

In view of the rapid technological changes and the shift towards 4th industrial revolution, delegates said African countries should be prepared for the challenges digitisation will bring about. 

This calls upon the continent, particularly the members involved in Inclusive Framework, to be active in the global decisions on taxing the digital economy to ensure that the outcome of these discussions is favourable to Africa. To that end, participants were agreed on the need for more technical dialogue within African to help the continent reach a consensus on what solution will work best for Africa instead of being trapped in the global tax agenda.

Africa has 23 members on the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) with a representation in the IF Steering Group. ATAF has since pledged to continue supporting African countries in their quest for new taxing rights through channels such as the Cross-Border Taxation Technical Committee.

According to the outcome statement, three proposals are already being discussed through the Inclusive Framework on BEPS to grant new taxing rights to countries. 

These are “User participation”, “Marketing Intangibles” and “Significant Economic Presence”, to deliver a long-term and consensus-based solution by 2020. 

The discussion sessions unpacked the three proposals being considered by the Inclusive Framework, and all participants had a fair understanding of these proposals and urged ATAF to continue providing support to African countries through the Cross-Border Taxation Technical Committee, presence at Inclusive Framework meetings and capacity building.

The meeting noted that ATAF should consider the work being done on digitalisation by other bodies such as the United Nations to have a broader view of the issues instead of relying on OECD Inclusive Framework. 

Consideration was also given to introducing interim measures to address the tax challenges caused by digitalisation. It is hoped that the new taxing rights would provide additional tax revenue for African countries towards their domestic revenue mobilisation efforts. 

This is critical in most African countries that have low tax to GDP ratios, compliance challenges and inconsistent revenue flows from the extractive sector. – Chronicle