Africa Looks to Tax Tech Giants as Economic Fallout From COVID Bites

Tax officials in Africa estimate that government revenues will drop between 10 and 30 percent in 2020 as a result of the economic fallout stemming from the coronavirus pandemic. But while businesses in the hospitality, construction and retail sectors have suffered, digital companies have boomed as more people stay home and conduct their activities online.This is driving talks in Africa about how to make sure big multinationals such as Google and Facebook, which do not always have a physical presence in the countries where they make a profit, can be taxed.Logan Wort, executive secretary of the African Tax Administration Forum, was among government officials, members of the Organization for Economic Co-operation and Development (OECD), and African Union who gathered virtually Wednesday to address the issue.FILE – A worker sorts online orders before they are delivered to customers from a Checkers store, amid a nationwide coronavirus lockdown, in Johannesburg, South Africa, July 14, 2020.Wort said that due to the coronavirus pandemic, businesses in the sectors of e-commerce, online transactions and other digital services have experienced a boom. The e-commerce sector alone is projected to increase its revenues by 41 percent, according to the African Tax Administration Forum.  “Question: Are we collecting better on these transactions? Are we aware of these transactions? Are the businesses doing these transactions, do they have a physical presence in our countries and, if not, do our regulations provide for them to be taxed?” Wort asked.Talks about how to roll out harmonized laws to allocate tax rights in cross-border transactions are currently under way among members of the OECD. This is because governments across the world are concerned there is a misalignment between the location where profits are reported and the location where economic activities occur.Victor Harison, the commissioner of economic affairs for the African Union, said the tax-to-GDP ratio in 26 African countries reporting to the AU is just 17.2 percent, compared to 32.2 percent in developed countries that belong to the OECD.He called on more African countries to participate in talks on a global level about how to tax multinational companies so the profits from their wealth can be shared more equitably. “So far, only 25 African countries are part of this initiative, which is a cause of concern for the African Union,” Harison said. “Corporate income tax is a substantial source of taxation in Africa, amounting to more than 25 percent of total revenues in most countries.”  FILE – A schoolgirl receives online lessons in the district of Port Bouet in Abidjan, Ivory Coast, April 21, 2020.David Masondo, deputy minister of finance of South Africa, said Africa needs a central body within the African Union to speak with one voice on tax policies. “These unified policies should include or focus on improving the allocation of tax rights in cross-border transactions, including the digital transactions of multinational enterprises,” Masondo said.The U.S. has pushed for its companies to be able to opt in and out of the global rules on taxing multinational companies, as long as they adhere to certain basic principles.Annet Oguttu, a member of the high-level panel on financial accountability and transparency, said while Europe was at loggerheads with the U.S. over the matter, African countries also have a role to play in the discussion. “The focus of the discussion seems to be about the U.S. protecting its multinationals and the European countries trying to get the best out of it,” she said. “The question then is, where do we stand as developing countries in Africa? Perhaps coming together under the platform of ATAF could bring together a more united front that could be able to address these issues.” Talks at a global level are due to reconvene in October, now that proposals about how to tax digital multinationals have been shared among governments. 

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