Fiscal authorities are developing a strategy to broaden the tax base by, among others, introducing a tax on the digital economy, as government looks to turn around years of deficits and stabilise public finances.
Although the recent Budget Strategy Paper did not provide details, taxing the digital economy involves actions such as levying transactions and commercial values that emanate from platforms that include the Big Tech firms such as those in social media and e-commerce trading networks. The Big Tech firms include Google, Facebook and others while e-commerce networks include Alibaba.
“In an effort to address the challenge of revenue collection and hence, boost domestic revenue, several strategies are being developed, including broadening of the tax base by considering taxation of the digital economy,” reads the paper.
Alongside the possible introduction of a digital tax, technocrats at the Finance Ministry are also considering tightening existing tax collection through introducing electronic billing/invoicing platforms to improve VAT tax compliance and introducing a business intelligence and data analytics function to gain a deeper understanding of the behavioural patterns of taxpayers in order to apply targeted interventions. The technocrats are also pushing for the strengthening of the tax audit function at the BURS and a focus on sector specific audits based on risk management. A track and trace system to combat smuggling of excisable goods is also being considered.
Reacting to the latest plans, local tax expert, Jonathan Hore cautioned that while taxing the digital economy was a step in the right direction, taxing the Big Tech firms would be a difficult proposition as these firms are not located in Botswana and could prove difficult to collect from.
“When the firm is not located locally, it’s difficult to have access to a bank account to garnish,” he said. “The firms may look at the contribution of Botswana to their global income and decide that it’s not worth offering those services in the presence of a digital tax. “Firms may also simply choose not to comply and it is also not reasonable to expect that they will know your new law.”
The quest to tax the Big Tech firms is a challenge for many countries around the world, with some of the bigger nations who have attempted to do so, crossing swords with the United States where many of the Big Tech giants are based. In Africa, several countries have complained that while companies like Google, Facebook and others are enjoying surging revenues off the continent’s rising digitisation and young population, these revenues are out of reach of desperate economies.
The continent’s tax group, African Tax Administrators Forum (ATAF), of which Botswana is a member, developed guidelines last September on how countries could approach the taxation of the Big Tech firms. African countries can simply adapt ATAF’s guidelines to their own requirements in developing laws for taxing the digital economy.
Hore also explained that taxing the digital economy could also involve introducing a withholding tax on payments made locally to firms involved in the digital economy.
“That would look at a withholding tax on local taxpayers when they make payments on platforms like Alibaba,” he said. “There is already withholding tax on certain items like commercial royalties and these could be expanded to incorporate the digital economy.”
Mobile money payments are another potential source for taxation, where a financial transactions tax could be applied.
Mobile money market services began in the country in June 2011, with the value of transactions shooting up from P175 million in that year to more than P1 billion in 2014.