Tax and Customs Duties on Online Content – South Africa and Kenya Plan Different Approaches and Uganda is asked to abandon its Social Media Tax.
The South African Parliamentary Budget Office (PBO) published a report on taxing the digital economy in SA which concentrates on taxing digital services from aboard. Despite its claim to provide “independent, objective and professional advice and analysis to Parliament on matters related to the budget”, the PBO, in this case, bases its findings on a discredited report published unofficially by some staff members of UNCTAD, and ignores other recent studies by the OECD and WTO. The PBO report calls for South Africa to vote against the WTO moratorium on customs duties for “electronic transmissions”. EFSA has briefed BUSA as follows:
“The WTO Moratorium – In 1998 the WTO member states all agreed to a “moratorium” on applying customs duties to electronic transmissions. This agreement must be renewed by unanimity every 4 years and this has happened regularly except for a 2-year hiatus in 2002-3. Now the member states must agree again & the US is calling for a permanent moratorium. India and SA spoke out against the moratorium. It is very unlikely that other states will follow SA’s lead, and in fact recently India has been said to be reconsidering.
There are some serious unresolved issues:
- what is the definition? Some say electronic transmissions are only data flows; others that they include data services, others that they include such products as software. Obviously this makes a major difference, and so measuring the impact is virtually impossible;
- How would those customs dues be collected? EFSA is extremely concerned that the onus for collection will fall disproportionally on SMEs;
- Will the collection of duties bring in more revenues than the cost of the collection? This is a major issue. Until SA defines the term and then does a proper study, which must include looking at where the cost of the collection will most impact, EFSA suggests that SA accepts the moratorium at least for the next 4 years;
- the social advantage of not applying duty to electronic transmissions – as well as businesses, consumers will also have to pay these duties, and that includes consumption of e-learning courses coming from abroad. The OECD, for example, has studied the moratorium and put a social benefit measurement on it, which out weights any financial gain to the fiscus. From a PR perspective, EFSA suggests that introducing customs duties on e-learning at this moment in time is not likely to gain positive media coverage.
- SA is a large net exporter of digital services, such as fintech, cloud services, etc, to the rest of Africa. Imposing a customs duty on the imports of such services will attract reciprocal treatment from our trading partners to the detriment of SA invisible exports
- SA should be aware that if it applies a customs duty today, it is likely to have to be removed tomorrow under the negotiations on the AfCFTA (which aims to remove 90% of all tariffs within the continent). Unless this is a trade quid pro quo it makes little sense!
- Finally, it would seem unwise at present to start a tariff war with the US. The US under present management might take objection to reciprocal action. SA is likely to come off worse.
Meanwhile, the Kenya Revenue Authority (KRA) announced the introduction of digital content taxes, on the downloading of software, podcasts, videos, etc., and plans to collect tax from online taxi-hailing platforms, streaming sites, or any other digital marketplace supplier in their proposed Value Added Tax Regulations. According to KRA, the measure is to offset some of the losses due to Covid-19. Firms like Uber Technologies Inc, Google parent Alphabet Inc and Netflix Inc are expected to register for value-added tax or appoint a local agent. It should be noted that this is a sales tax and should not be confused with a customs duty, which SA wants to apply.
On the other hand, the World Bank has asked the Uganda government to abolish its over-the-top tax (OTT). The Bank, a big lender to the government argues that the move would encourage access to coronavirus prevention messages for the vulnerable. This is the first time the Bank has openly called for the abolition of OTT popularly known as the “social media tax”. EFA, in its evidence to the Bank in early 2020, pointed out the adverse effects of this tax and the resulting deepening of the digital divide in Uganda.
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