Tuesday, September 26, 2023

The Taxman’s net now aims at the digital economy

Botswana is preparing to join a growing list of African countries that will effectively capture an untapped digital economy within their tax base. The move is a bid by many African nations to grow revenue from a sector that has experienced phenomenal growth over the past several years. In Botswana, the list of companies that are doing business remotely is long. It includes Alibaba, Netflix, Amazon, Meta (trading as Facebook, WhatsApp & Instagram), Google etc, and now the government says all of them will in the future be subjected to pay tax for the businesses carried here.

The new development was confirmed this past week by the Botswana Unified Revenue Services (BURS) – a government agency responsible for tax collections.

BURS executives, who addressed a press conference alongside the minister responsible for Finance and Economic Development – Peggy Serame told journalists that Botswana need to benefit from the multinational tech companies that are remotely doing business in Botswana.

While the BURS could not immediately share the modalities of how the collection will be done as well as the anticipated rate, Serame said that there are ongoing global discussions that will help Botswana expand its tax base and possibly increase revenue through digital tax.

Botswana is not the only country in Africa which is going after the multinational digital companies. In late March, Ghana announced that it will now require all e-commerce and digital platforms without physical presence in that country to file tax returns and pay monthly taxes just as local businesses do. Media reports indicated that the west African nation is targeting digital players amongst them Alibaba, Google, Netflix, Amazon and other online betting platforms for taxes to raise additional revenue for its cash-strapped economy effective April 2022.

Still in west-Africa, Nigeria’s new legislation dubbed the Finance Act (2021) was signed into law in late December 2021, two years after the country’s Federal Inland Revenue Service (FIRS) first announced the country’s decision to tax digital transactions. According to the said Act, non-resident companies in Nigeria such as Netflix and Meta, who offer digital services, are also required to remit 6 percent of the annual turnover of their business to the FIRS under the new regulation.

Across the border in the south, the South African Revenue Services (SARS) has indicated it would prefer to align with the initiatives of the Organisation for Economic Cooperation and Development (OECD) on the digital economy taxation. In October 2020, South African president – Cyril Ramaphosa’s 4IR Commission published a report looking at the state of technology in the neighbouring country, and possible tax changes that country could introduce to help it prepare for the ‘fourth industrial revolution’. Among the recommendations was a series of tax proposals, including a new digital tax for companies such as Netflix, Amazon and Facebook, which operate in a number of territories internationally.

In 2015, the Organisation for Economic Co-operation and Development (OECD) issued its report on the Base Erosion and Profit Shifting (BEPS) project which addresses the taxation of the digital economy. The OECD concluded in the report that the digital economy does not generate unique BEPS issues although some its key features may increase BEPS risks.

Five years later, in August 2020, Deloitte South Africa said that with the OECD work in place as well as the Africa Tax Administrative Forum (ATAF) suggested approach, which will provide much needed clarity around the implementation of a digital tax, it is likely that more countries across the continent will begin to implement some form of digital tax in the near future.

Just like her neighbour, Botswana is likely to rely on the OECD recommendations as well as a policy document penned by ATAF in 2020. ATAF released a policy document in June 2020 titled Domestic Resource Mobilisation – Digital Services Taxation in Africa which announced that the Forum is in the process of developing a “Suggested Approach to Drafting Digital Services Tax Legislation”. The aim of the suggested approach is to provide African countries with a structure and framework for introducing a digital sales tax (DST).


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