African jurisdictions, with the support of ATAF (the African Tax Administration Forum), are slowly recalibrating their taxation regimes to bring non-resident digital businesses into scope.
We have seen many moves in African jurisdictions recently relating to VAT on foreign digital service suppliers and, as is the case in Kenya, the introduction of one of Africa’s first DST regimes. The key driver for this change of approach is the need for more revenue, as a result of the ongoing COVID-19 pandemic.
These moves follow ATAF’s publication of guidelines on how best to apply VAT last August at high-level tax policy dialogue session, and more recently their comments on the OECD’s Pillar One (DST) proposals. ATAF has also released two toolkits (VAT and DST) to inform and prepare African nations for the implementation of such taxation regimes. The links to this toolkits are here for VAT and here for DSTs.
In an August 2020 press release ATAF outlined why there is a pressing need for African jurisdictions to look at extending VAT regimes to the digital supplies of non-residents: “On the table as a source of untapped revenue must be businesses in the digital economy who have a significant economic presence in African countries and benefit from economic activity but have little obligations to pay tax because they do not have a physical presence in these countries. This has become even more urgent because the COVID-19 the crisis has increased the dependency on digital services as these remain most feasible given the need for social distancing.”
At the August tax policy meeting it was agreed that “the improvement of efficiency in tax policy and administration is vital to the balanced act of effectively providing services to taxpayers while mobilising the much-needed revenue for the provision of socio-economic infrastructures.”
This is a subject that the ATAF has worked on in numerous technical workshops gathering tax administrations from across the continent (most recently virtually) to discuss realistic options.
From a practical perspective it is not always straightforward for African jurisdictions to mirror VAT and DST implementations elsewhere. As more and more jurisdictions observe global taxation trends there is a temptation to fast-track these implementations without accepting the practical implications of such moves. In many African jurisdictions there are currently no simplified mechanisms to collect VAT from foreign digital companies.
On this point, a January 2020 working paper from the International Centre for Tax and Development (ICTD) outlined some of the lessons that African countries can draw on when redesigning their own taxation regimes. The paper argues that: “The resource-constrained circumstances of many of Africa’s revenue administration bodies should be considered in the development of reform proposals. The practical application of the tax measures targeted at the digital economy will likely require the setting up of new infrastructure and capacity building by the revenue authorities and other relevant government agencies.”
This situation is slowly changing and we have been alerted to a considerable amount of African activity with ongoing efforts to modernise and improve their VAT (and now DST) collection mechanisms.
For more detail on developments in specific African jurisdictions click on the relevant link below:
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