Implement taxes for digital space – Prof Gatsi tells African governments
An economist, Prof. John Gatsi, has urged African governments to introduce a new tax targeting online businesses.
Prof. Gatsi explained that tax revenue has shrunk over the years in most African countries due to the influx of online business activities.
A digital presence tax hinges on a digital platform deemed to have a taxable digital presence or a permanent virtual establishment in a member state.
He reckoned that digital companies could avoid paying taxes because they did not need physical offices and stores to sell their goods and services to consumers in a particular country.
He noted that the inherent characteristics of digital transactions made it particularly easy for enterprises to limit their tax liabilities and sometimes utilise that forum to evade tax in the digital economy.
Speaking at the 10th annual International Tax Conference 2022 in Accra on 13 September 2022, Prof. Gatsi, who is also the Dean of the Business School at the University of Cape Coast, recommended that countries in Africa should consider digital tax as an additional source of revenue.
“Developing continental taxation principles for online advertising of goods and services is, therefore, a step in the right direction. A digital presence tax should be subjected to bilateral and multilateral agreements between the state where the foreign company has a digital presence and the state where the foreign company is incorporated and is a taxpayer.”
“These agreements must allow for autocratic exchange of tax information,” he said.
The tax conference was organised by the Chartered Institute of Taxation, Ghana and was on the theme, “Improving Domestic Tax Revenue Mobilisation: A Consultative and Inclusive Approach.”
There is a growing global consensus that the digital economy is relatively under-taxed compared to traditional businesses.
According to the World Bank, the digital economy is equivalent to 15.5 per cent of the global economy, growing two and a half times faster than the global gross domestic product (GDP) over the past 15 years.
Prof. Gatsi alluded to some challenges that have distorted the contribution of the African digital economy to growth.
He cited attempts to develop a digital tax framework without broader stakeholder consultation resulted in implementation challenges.
Also, he said the framework for digital taxation was developed for current fiscal solutions rather than the progressive contribution of the digital economy to taxation.
Prof. Gatsi said taxing the digital economy offered more opportunities for emerging and developing countries such as enhanced tax base and deepened partnership relations with taxpayers.