I am currently writing a white paper that looks at digital financial services taxes with specific emphasis on strategies for financial services providers on how to position themselves as the digital financial services taxes become widespread across Africa.
To give context there are 4 countries in Africa that currently have some sort of tax on digital financial services they are Uganda at 0.5%, Zimbabwe at 2% , Tanzania at 0.1% and recently Cameroon at 0.2%
Ghana is currently in the process of enacting the law in 2022 at 1.75%. The taxes are implemented a variety of ways across of continent , in Uganda only Cash out are taxed , whereas in most of the countries the tax is based on specific transaction and/or volume of transactions
As part of my research I discovered a working paper titled “Should Governments Tax Digital Financial Services?” Written by Laura Munoz, Giulia Mascagni, Wilson Prichard and Fabrizio Santoro.
They ask a number of questions that I think are important on the taxation of digital financial services (DFS) discussion and help bring illumination to all sides of the discussion
- Do specific taxes on digital financial services unfairly target service providers, and thus create horizontal inequity – or, alternatively, do these taxes in fact correct existing under taxation of DFS providers, and thus improve horizontal equity?
- Will specific taxes on digital financial services generate broader inefficiency by distorting market development and reducing financial inclusion – or, alternatively, are impacts on market development, and usage of financial services, likely to be small relative to the benefits of expanded revenue collection?
- Will taxes on digital financial services create unduly heavy burdens on, and consequences for, low-income, groups – or, alternatively, may tax burdens be more neutrally or progressively distributed, and May corresponding impacts on development outcomes be more muted?
I am choosing not to enumerate on these points because it will addressed in the white paper.