When you buy a Nike shoe in Africa , the importer or distributor of Nike in your specific country pays tax to the government where the Nike shoe is sold. Local customs ensures that the importer/distributor of the product pays!
However, if you live in Africa for example and buy a Spotify subscription, the local tax authority of the country you live in gets no revenue! Not trying to hate on Spotify, I’m also a user! But in this case, only the country where Spotify as a company is registered cashes in the Tax revenue!
Should Spotify have a tax advantage over Nike when it comes to selling abroad or out of their registered jurisdiction ? I don’t think so! I believe internal tax rules and policies should not favour digital/ online sellers over foreign product sellers!
There is a growing number of multinational enterprises (MNEs) selling digital services. It is estimated that 40% of the African population is expected to shop online by 2050, representing more than 500million shoppers
Several African countries have already implemented local VAT/GST guidelines and have started collecting digital & online tax from their respective digital economy such as e-coms, marketplaces & more. However, when it comes to foreign sellers, there is still a challenge in regards to collecting and enforcing digital service tax!
It’s a bigger problem in Africa:
Industry leaders such as ATAF (African Tax Administration Forum) and OECD (Organization for Economic Co-operation and Development) have issued guidelines and recommendations on how countries can collect VAT from foreign sellers.
But, taxing foreign digital sellers in Africa is going to be a problem for a while, here is why:
- 🙀 Double taxation: most foreign sellers will be happy to comply, but they certainly do not want to be taxed in their registered country, as well as in each foreign country where they sell , especially if they cannot claim it back in their resident country!
- 🧾💸📅 DSTs could reduce the growth of the digital economy in African countries, particularly start-ups, SMEs, and the digital creators!
- ⚖️ Remote sellers are not familiar with local tax laws in each African country, they will not bother to register until required!
- ✊🏿 If most African countries have separate processes and different rates, it’s likely going to discourage and delay remote sellers from registration.
- 🙅🏿♂️ If some countries enforce harsh measures , foreign sellers might just opt out of specific countries where they don’t have enough business!
📊 The opportunity for African tax authorities:
- Providing a smooth and easy registration process for foreign sellers, separate from local tax requirements is the start in collecting and enforcing this tax. Consumers will continue to buy goods and services from foreign sellers, especially if there is no local alternative.
- Coming up with similar taxing policies across the continent for foreign sellers and certain digital products and services might encourage international trade.
🚀🚀🌌 Opportunity for new business, tax experts, & tax intermediaries:
- Given the complexity of enforcing tax liabilities on business based abroad, government will rely on tax experts to come up with solutions, specific to their their respective countries in Africa
- New tax businesses and tax agencies have the opportunity to help foreign sellers to comply, and to generate additional revenue for their local tax authorities.
African tax authorities have started to tackle, collect and implement digital service tax from foreign sellers. How do you think your tax authority should tax foreign digital sellers?
- Should Tax authorities across Africa implement a flat percentage? on which digital products/ services!
- Should African countries charge a lower flat DST (digital service tax) percentage across online products/ services!
- Different DSTs or high tax rates could block some businesses, start-ups, or SMEs from operating in certain countries, thereby reducing the growth of the digital economy in African countries.
- How will African countries enforce DST?
- Read more on ATAF/OECD guidelines and reports here
