Thoughts on taxing the digital economy

THE Covid-19 pandemic has brought to the fore, the focus on the rapidly growing shift to a digitalised economy across the globe. The social and economic lockdowns imposed by government worldwide have pushed many individuals and companies onto online platforms to conduct their business. While other sectors of the economy have come to a standstill, the digital sector has boomed. This has huge implications for business models going forward, and makes it even more urgent that solutions be found for the taxation of the digital economy that are equitable for source and market jurisdictions.

Already African countries including Namibia are reporting a reduction in tax revenues, especially from the non-digitalised sectors. The decline in the prices and demand for commodities and the impact of the pandemic of the travel and tourism sectors, which Namibia mainly depends on for tax revenues, have led to significant revenue losses. In light of this crisis, it is imperative that our policymakers respond with heightened urgency to the issues raised by the impact of the Covid-19 pandemic on the economy and take a closer look at the proposals for the taxation of the digital economy and their likely implications for revenue collection.

Without doubt, we must rethink our economic and fiscal policies to ensure that the recovery after Covid-19 is faster, with a more significant impact on the lives of citizens. Regarding tax policy and tax administration measures, now more than ever it is critical that tax practitioners collaborate and pursue tax measures to shore up revenue that will foster economic development and bridge the gap that will arise due to a reduction in aid.

On the table as a source of untapped revenue must be businesses in the digital economy that has a significant economic presence in Namibia and other 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 Covid-19 has increased the dependency on digital services as these remain most feasible given the need for social distancing. For example, in the last few months, we have seen a boom in the adoption of video conferencing services such as Zoom and Microsoft Teams. As African citizens continue to acquire more digital services, the growth, expansion and remote presence of digital multinationals in Africa, will continue to impact tax revenues across the continent.

The taxation of the digital economy has been a hot topic on the international tax agenda for some years, with a drive towards finding a consensus-based global solution. To this end, through the OECD’s Inclusive Framework on BEPS, 137 countries, of which 25 are African countries, have been working together on proposals to address the tax challenges arising from the digitalised economy. Although some progress has been made, it now seems unlikely that a global consensus will be reached by October as intended. Although the disruption caused by the Covid-19 crisis has not helped, there are other sticking points, particularly with the United States on binding arbitration and the imposition of interim digital services tax by a number of countries like France and India.

African countries too have considered various options on taxing digital services. In recent times, 10 African countries – Kenya, Nigeria, South Africa, Egypt, Tanzania, Mauritius, Uganda, Cameroon, Ghana and Zimbabwe have either implemented or indicated that they plan to implement unilateral direct or indirect tax approaches in taxing the digital economy. This should challenge Namibian authorities to think in the same direction if they are to shore up revenue in the coming years.