The African Tax Administration Forum (ATAF), comprised of tax administrations from 38 African countries, on September 30, published sample digital services tax legislation for use by member countries.
Digital firms often escape corporate taxation in Africa under the current international tax framework, the ATAF said in a statement accompanying the release. Moreover, COVID-19 has allowed online platforms’ to increase profits as people are forced to operate online yet African countries are unable to tax them because the companies do not have a physical presence in Africa, the ATAF said.
“Whilst efforts continue to be made by the OECD Inclusive Framework to develop a consensus-based solution to address tax challenges arising from digitalisation, the status to-date shows that a global solution is unlikely to be reached this year. This delay could cost African countries millions of dollars of tax to the ATAF membership who might wish to act now to address this potential risk,” the ATAF said.
The proposed legislation suggests a digital services tax of between 1 percent and 3 percent of digital firm revenue. The guidance includes definitions and explanatory notes.
Services delivered over the internet or an electronic network including through online platforms would be covered. Such services include, but are not limited to, online advertising services; data services; services delivered through an online marketplace or intermediation platform, including an accommodation online marketplace, a vehicle hire online marketplace and any other transport online marketplace; digital content services, including accessing and downloading of digital content; online gaming services; cloud computing services; services other than those services above, delivered through a social media platform; and services, other than those services above, delivered through an internet search engine, the sample legislation states.
The sample legislation also states that countries can choose to impose the tax only on companies that exceed a threshold of annual turnover worldwide and in-country.
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