African countries see their booming digital sector as a prime target to recuperate pandemic losses.
For Europe, teaming up with African countries could help it counter the weight of Washington | Lionel Bonaventure/AFP via Getty Images
ADDIS ABABA, Ethiopia — Europe and Africa are teaming up to push for international rules for taxing tech giants in the face of American skepticism and the economic crisis caused by the coronavirus pandemic.
The Organisation for Economic Co-operation and Development on Monday is set to publish technical blueprints on how to tax digital companies across borders, like Facebook, Amazon and Google. The plans consist of two pillars: one aimed at ensuring big digital and multinational companies are taxed in the places where they generate profit — not where they book them. The second pillar aims to set a global minimum corporate tax rate.
For Europe, teaming up with African countries could help it counter the weight of Washington, which is staunchly opposed to the first pillar and has threatened EU countries with a trade war if they pursue taxes that the U.S. argues are mainly targeted at American companies.
African countries themselves see taxing Big Tech as a way to dig the continent out of a mounting economic crisis spurred by COVID-19 — and some are ready to act even if the OECD talks don't pan out.
State revenues across the continent are set to drop by at least $70 billion this year — almost a third of the previous year’s earnings — and interest rates have already risen to levels not seen since the 2008 global financial crisis.
“I don’t think there is a lot of confidence in what is going on with the [OECD's] inclusive framework." — Mustapha Ndajiwo, special assistant to the executive chairman of the Federal Inland Revenue Service of Nigeria.
Most African countries “consider that finding a global consensus-based solution to address the tax challenges from the digitalization of the economy is currently the most appropriate way forward,” said Logan Wort, executive secretary of the South Africa-based African Tax Administration Forum (ATAF), the continent's lead agency in charge of forming Africa's position on the issue.
“The absence of a decision is leading to epic tax loss when digital services are the single most thriving sector of the times.”
E-commerce is a natural area to target given its growing potential in Africa: The sector is projected to increase its revenues by 41 percent this year, according to the ATAF, while the tax-to-GDP ratio in 26 African countries reporting to the African Union is just 17.2 percent, compared to 32.2 percent in developed countries that belong to the OECD.
Such stark figures are becoming harder to ignore with Africa's digital economy now growing at a fast clip. For instance, Jumia Group, an online marketplace founded in Nigeria, is present in 14 countries on the continent, providing services to 81,000 merchants and has received investments from Rocket Internet in Germany, Goldman Sachs, MTN and Orange.
China’s Alibaba has also partnered with countries such as Rwanda and Ethiopia to launch electronic trading platforms.
Countries such as South Africa, Nigeria, Kenya and Uganda have spearheaded a move to introduce taxes on mobile transactions, internet data and money transfers and are now looking to the Africa Union to harmonize how Africa taxes digital companies like Facebook, Amazon and Google.
So far, only Kenya has devised a plan for a digital services tax, though the ATAF has issued guidelines on how the continent might roll such a tax out across the region.
The 25 member countries currently backing the ATAF — including Nigeria, Rwanda, Kenya, Egypt, Senegal and South Africa — feel the OECD’s current proposals will fail to redress the current imbalance in taxing rights.
“The developed world is not listening to the concerns of Africa and other developing countries,” said Wort, adding that the status quo had fast-tracked his organization's efforts to mobilize political support inside the African Union to have the continent adopt its own strategy.
The time has never been so ripe for continent-wide discussion on a digital tax, said Mustapha Ndajiwo, special assistant to the executive chairman of the Federal Inland Revenue Service of Nigeria.
“I don’t think there is a lot of confidence in what is going on with the [OECD's] inclusive framework,” he said. But he noted Africa is participating in the global discussions due to the importance many governments now attach to at least kick-starting the process.
Nigeria’s Mathew Gbonjubola is a deputy chair of the OECD’s steering committee on the inclusive framework. “Clearly the pandemic has had a strong influence on domestic resource mobilization,” Ndajiwo said, adding that in Nigeria, work was underway to lift barriers to digital trade while simultaneously looking for ways to back a harmonized approach through the ATAF and the OECD.
To make sure Africa does not let the moment pass it by, ATAF is poised to take the digital tax agenda into its own hands. Should the OECD’s approach fall short of the mark, tax experts in Africa say, there will be no other choice for the continent other than to make its own rules.
“Should no such solution be reached in the near future, then African countries … will be left with no other options but to consider implementing unilateral measures to address the current revenue loss,” said Wort of ATAF.
Author: Simon Marks
https://www.politico.eu/article/eu-and-africa-team-up-on-taxing-big-tech-amid-covid-crisis/