Research body warns of digital taxation risks

By Staff reporter | 26 Nov 2019 at 12:10hrs
THE International Centre for Tax and Development (ICTD) has said due diligence is needed in enforcing taxation of the digital economy to avoid the risk of reducing adoption of electronic financial services and frustrating desired financial inclusion for low income countries.

Zimbabwe, Benin, Kenya, Uganda, Cote d'Ivoire, Tanzania and Zambia are among the countries that have already imposed taxes on electronic transactions while others have shifted to over the top (OTT) media services.  

Although digital payments and digital personal identification provide opportunities to advance financing development, experts fear the move could induce governments to take tax policy decisions that can have adverse consequences.

"The rapid growth in the use of digital financial services, especially mobile money, tempts governments to try to raise revenue easily and at low costs by imposing taxes directly on mobile money and similar transactions," says the ICTD, a research network focused on improving the quality of tax policy and administration in sub-Saharan Africa.

"Such taxes risk reducing the adoption of digital financial services, and therefore threaten financial inclusion, as well as undermine the potential for revenue collection these instruments could enable. "Such charges might also bear particularly heavily on poorer or more vulnerable groups, including women".

Last week about 450 tax officials, experts, and policymakers from more 48 countries gathered in Kampala, Uganda for the 4th International Conference on Tax in Africa under the theme: "Innovation – Digitalisation and Harnessing Technology to Improve Tax Systems".

The conference deliberated at length about the digital economy and taxation opportunity for Africa.  Delegates also stressed the need for a collective regional position in negotiating new digital taxation rules on a global scale, which will ensure protection of African tax interests and ensure the continent settles for a fair deal.  

On the positive side digitalisation presents Africa with a higher scope for improved efficiency, convenience and reach of revenue collection, as well as reducing costs for both governments and taxpayers.  ICTD has since been granted US$4.5 million by the Bill and Melinda Gates Foundation to establish a three-year research and capacity building programme on tax in relation to digital financial services and their use.  

The initiative would also seek to cover digital infrastructure as part of ways towards enabling low-income countries to more efficiently and equitably raise tax revenue.  Increasing domestic resource mobilisation is a priority for low-income countries, as a critical means to financing sustainable development and achieving the United Nations sustainable development goals.

ICTD chief executive officer, Professor Mick Moore, commented:  "The goal of this programme is to provide developing country governments with clear, evidence-based policy recommendations around how to leverage fintech, as well as digital ID, to raise tax revenues more effectively and equitably.  

"We anticipate research in this new area will help identify opportunities to broaden the tax base via formalisation of the informal economy and increase the efficiency of value-added, among other taxes".



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