The quest to tax global digital giants by African countries, Botswana included, has grown thicker as the African Tax Administrators Forum (ATAF) launched and released a roadmap of taxing the tech giants on September 30, 2020.
Botswana is an active member of ATAF, a group of African tax administrators, which intends to close any tax leakages and enhance tax corporation amongst member states.
The roadmap titled, ‘Suggested Approach to Drafting Digital Services Tax Legislation’ comes in the form of a pre-drafted legislation, which member states simply need to add their names in certain spaces and then enact the same as a new tax law. ATAF is concerned that companies such as Amazon, Alibaba, Google and Netflix, amongst others, derive revenue from Africa without paying a thebe in taxes, as they do not need offices wherever their clients are located. ATAF proposes that a tax of between one percent and three percent of the annual revenue derived in member countries be subjected to a Digital Sales Tax. The tax is targeted at, amongst other revenue streams, online advertising, online gaming services and services delivered through online marketplaces. According to ATAF, other African countries such as Kenya and Nigeria have already enacted laws to collect the tax.
The key features of the proposed tax are as follows:
- Local representative: The proposed legislation seeks to make it mandatory for the head offices of the tech giants to appoint, in the case of Botswana, a Botswana-resident person for the purposes of paying the tax. The practical challenge with such a law is that it tries to bind persons outside the borders of the African countries, which comes with its own practical implementation hurdles due to geographical distance. If the head office of the tech giant chooses to ignore the law, there is little room for Botswana Unified Revenue Office (BURS), in our case, to move and try to collect the tax.
- No offices headache: The proposed legislation also suggests that where it is not possible to appoint a local person, the tax authorities may appoint anyone outside Botswana as long as Botswana has an agreement for mutual assistance on tax matters with that country. This entails that BURS could appoint someone based in South Africa for purposes of paying the tax. The challenges of distance due to the lack of a local office still play a pivotal role in making the law difficult to enforce.
- Local revenue vs bank accounts:
Assuming that the global revenues are available, they will then be used to determine locally generated revenue. It is critical to note that tax is easy to collect where BURS has access to bank accounts or debtors of the taxpayer. The fact that the tech giants do not have local bank accounts and debtors will undoubtedly stall collection of the taxes.
Backlash is possible
Considering that Africa is not as technologically advanced as other parts of the world, the tech giants may simply switch-off each country, which enacts such legislation, to avoid being subject to tax.
Further, the tax could worsen bilateral relations between the countries in which the tech giants are headquartered and each African country, which seeks to tax the online services. ATAF itself also warns about this when it stated that, “ATAF members need to be aware that there could be repercussions to taking these measures, such as the institution of tariffs by countries from which these MNEs hail”. This could trigger trade wars between Africa and the USA, China and Europe, where most of the tech giants are headquartered.
The easier way
There is consensus that tech giants must be taxed on income, which they generate from Botswana, in our case, even though they do not have offices here. However, given the fact that their management, accounting records and bank accounts are all sitting outside Botswana, implementing the law here may sound good but it may not yield the desired results.
The easier way of taxing these giants is by introducing withholding taxes on all the envisaged online services and requiring Botswana-based clients to deduct and pay the tax to BURS before paying the giants. In the event of non-compliance, BURS will go after the local entities and easily collect the unpaid taxes.
This is a more realistic option than legislating to tax persons who are outside one’s borders without access to their offices, books of accounts, bank accounts and debtors.
* Jonathan Hore is managing consultant – Tax at Aupracon Tax Specialists