Today during a press conference regarding the review of the newly introduced mobile money transaction levies, the Minister of Finance, Dr. Mwigulu Nchemba has hinted at plans to introduce digital service tax for taxing big tech companies.
Dr. Nchemba explained that this is one of the strategic areas that he is looking to tap into, “honestly, I don’t want to make this battle public yet, but when I got into the ministry, I asked our experts why are we leaving aside this big global [companies], they responded that they need more time to study this aspect”
The announcement comes as the government is looking for new sources of revenues to finance its sh.114.8 trillion (USD 49.5 billion) five-year development plan (2021/2022-2025/2026). “So, we are looking for an angle, we have this big [corporations] I don’t want to mention names for now, but when you use your phone there are all these big Apps, you use them and they collect revenue” clarified Dr. Nchemba.
The Minister was cautious to underscore the complexity of taxing big tech by the fact that they don’t have a physical address in the country “they don’t have even an office in the country [and] they make a lot of money, [there are Apps] for music, some, you are just being told to subscribe, there are many of them, where do they pay their taxes [for monies collected in Tanzania]?”
Tanzania is not the first country in East Africa to contemplate charging big tech, in January 2021, Kenya introduced digital service tax at 1.5 percent on income generated through digital transactions. Other countries in Africa include Nigeria and South Africa.
Africa’s digital market has grown over the recent years, with many residents of African countries utilizing various services from big tech. For example, Netflix has reported having a 40 percent revenue increase in 2020, from Africa, Europe, and the Middle East surmounting to US$8 billion. Facebook has reported revenue of 7.7 billion in 2020 from the rest of the world region which basically means Africa and a small portion of Asia. Alphabet the parent company of Google has reported earnings of 17 billion from Europe, the Middle East, and Africa in the first quarter of 2021.
The call from the ministry comes amidst of effort at the global level to re-structure the global tax system so as to enable governments to collect their fair share of taxes in a changing global economy. The conversation on digital tax has been mainly spearheaded by the Organization for Economic Co-operation and Development (OECD), where a lot of negotiation power comes from big economies. So far, several countries in Europe have introduced several instruments for the collection of digital taxes.
With the changing global economies, that companies could reap millions in a country without having an office or a single staff, Africa tax collectors need to rethink their approach of taxation. So far, Africa has very little negotiation power at the global stage, this is because of the lack of interest and readiness for African countries to think beyond a few internal and the usual sources of revenue. It’s also not very easy for individual Africa countries to have a say in an organization like OECD.
Dr. Nchemba has asserted that the work is ongoing, “all businesses are shifting to online so we want to make sure we find a way of getting the digital service tax so we have told them [country tax experts]to continue to study from countries that have tried and become successful so that we can also find a way to capture those revenues”.
With the determination from the Ministry in collecting more taxes from diverse sources, it’s fair to think the digital service tax might be an item in the 2022/2023 budgetary discussion.