Internet Tax regulation
A small number of African countries have turned to laws that penalize the use of the internet especially social media on their countries.
According to the Uganda Communications Commission in 2018 there were 23.6 million mobile subscribers and about 70% use the internet , The countries president who has been in power since 1986 legislated in July 2018 , a tat of USD 0.05 per day to access social media ( WhatsApp, Facebook , Twitter, Instagram etc. . This has been billed to slow down the growth and economic use of the internet across Uganda
A 1% levy on value of mobile money transaction is also billed to disproportionately affect the unbanked who do not necessarily have access to traditional banking
Tanzania has also launched USD 920 tax on publishing content online, this law require bloggers, vloggers and podcasters to pay a 480 registration fee and 403 annual fee to be allowed to be a publishers, in my interview with bloggers in the country, there are a few that are contemplating shutting down as the law also requires that they keep details of all who publish on their platforms including people who comment. The economic repercussions of these decisions have not yet been computed, but it looks to have long lasting effects on the economic growth the internet promises.
Direct Effect to Tech startups in Africa
Tech company inability to connect with and sell in the global market place [sub Saharan African has lost close to USD 237 million due to due to governments blocking access to the internet since 2015.]
Slow down the growth and economic use of the internet in country
Loss of investor confidence in countries with incidents of shutdown or improper taxation
Slowing down the growth of digital entrepreneurship across Africa: as the internet is the bloodline of most of these tech companies, and the difficulty in building and running a tech company will discourage potential entrepreneurs
My thoughts on a starting Solution
Margrethe Vestager has earned a reputation as straight talking, no nonsense straight talker in her role as the European Union EU Competition Commissioner. The former Danish foreign minister strikes fear in the hearts of Google, Facebook and all multinational digital services in her single minded pursuit of ensuring these multinationals digital service companies pay the right amount of taxes in the jurisdictions they serve.
In 2017 she led the EU to order Apple to pay 13 billion Euro in back taxes to Ireland and Amazon was ordered to pay ordered the company to pay €250 million in back taxes to Luxembourg by the European Union
In 2018 I had the good fortune to be on stage with Madame Largarde, President of the International Monetary fund, along with Ghana’s Minister of Finance, Ken Ofori –Atta. I learned in the that discussion the topic of taxing digital services across Africa , has become one of immense importance to finance ministers across the African continent as it thought that that these multinationals do not necessary pay the right amount of tax as per the value/profit they retrieve form the continent and this has led to regulation like those in Tanzania and Uganda where users are taxed to access these services instead of the multinationals who derive profit from advertising on their platforms, which I have already described is bad to the digital economic growth
I am of the opinion that mimicking the European Union’s Margrethe Vestager approach of attempting to legislate and regulating tax as an economic block is a far better solution to this problem
According to the center for economics and business research in the UK, it was determined in 2017 that bookshops paid 11 times the corporation tax, Amazon pays, Facebook up until 2017 routed all their non US tax through their European Headquarters in Ireland, which has a corporate tax of 12.5% far lower than they have to pay across other jurisdictions in the EU.
The proposed EU Digital tax would make multinational digital service providers:
- Declare revenue as per the European countries there generated from, shared revenue would be calculated by an agree upon formulae
- The use of a single set of common rules to calculate tax on profits for the multinational digital service providers, instead of separate calculations in separate jurisdiction
- The Digital service providers would be allowed to consolidate profits and loss across the EU jurisdiction and generate a net profit for taxation
- These taxes will be levied on multinational digital service providers with a global annual turnover of €750m and annual EU revenue of at least €50m at rate of 3%
All though the digital taxation has stalled countries like France starting in Jan 2019, will be taxing these digital service providers and the UK has added a tax on “parts of digital businesses that derive “significant value” from British users”.
This approach if replicated by African countries under the protection of the African Union grouping in line with the Africa Free Continental Trade Agreement, will enable African countries to gain more taxation from these players, while weathering the storm of any backlash from the United States, where most of the companies originate from.
Having African would have to be less aggressive than their EU counterparts, because for example Facebook in its bid to hook the next billion, who are resident in Africa has enabled the push for increased access to the internet through its laying of over 550 miles of fibre cable in Uganda and understanding that most of these companies receive a relatively small amount of their revenues from African consumers.