Sunday, October 25, 2020

Experts exchange notes on digital economy impact on tax

BY ARNOLD LETSHOLO

With the value of the global digital economy estimated at over US$11.5 trillion and set to rise to over US$23 trillion by 2025 the effects of digital trade and economy in Africa are points of key debate.

Currently the biggest distress is that majority of multinational companies operating within the digital economy are said to be paying tax where they are incorporated as compared to other jurisdictions where they also do or aid businesses.

As a result, the digital economy has been described as a two edged sword that needs scrutiny to be more fruitful to the African continent.

All these came to light in the capital Gaborone at a two day dialogue on illicit financial flows from Africa hosted by Botswana Council of Churches (BCC) and African Forum and network on Debt and Development.

Speaking at the workshop Layla Abdul Latif – a lawyer from Kenya highlighted that digital economy can be utilised as key ingredient to stimulate technological innovation and services.

“The digital economy is driven by content production, consumption and indexation.  Digitalisation allows more traditional business models to sell to consumers without the need for physical presence in the customer jurisdiction. It has paved the way for new business models, based upon user participation, to create value, and generate income. It has eased access to information, communication and transfers,” explained Latif.

It emerged at the workshop that the traditional rules on corporate tax applied to brick and mortar companies cannot be applied to digital economy companies. Yet these rules are being looked at to regulate digital economy for tax purposes. It is said that this creates a wiggle room for the loss of revenue.

At the same time, Digital Economy has been blamed for providing a facilitative opportunity for Illicit Finance Flows if the system is abused.

“One can earn money illegally and transfer illegal funds through it. You can earn money illegally and transfer illegal funds. This can lead to the creation of underground illegal markets of cybercrime and cyber related crime”, said one of the panellists at the BCC workshop.

Still at the workshop Botswana Unified Revenue Services Officer – Bontle Moalosi decried the fact that there is no taxation literature for digital economy in Botswana.

She said this makes it impossible to tax it. Equally there is not yet taxation policy on the industry in SADC and many African countries save for the Republic of South Africa.

“We have to benchmark, but how do we do that while South Africa is so advanced? Immediate solution would be to exchange information. We have signed agreements for information sharing and it is high time the Generals of the Department smoothened flow of information,” she said.

Meanwhile BCC spokesperson – Kelebogile Lekone said IFFs reduces domestic resources and tax revenue needed to fund poverty reducing programs and infrastructure in developing countries.

“Our dear continent is annually losing more than $50 billion through illicit financial outflows (UNECA 2018). Please convert to your Pula and see the magnitude,” explained Lekone.

Lekone also highlighted that between 2008-10 Africa had lost US$63.4 billion to IFFs.

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