African revenue tax authorities are meeting in Kampala to discuss ways of taxing mushrooming international online companies that have been dodging paying taxes in the past.
This is being discussed at the 4th International Conference on Tax in Africa (ICTA) and the African Tax Administration Forum (ATAF)’s 10th anniversary celebration taking place at Serena Hotel in the Capital, Kampala.
Themed “Innovation- Digitalization and Harnessing Technology to Improve Tax Systems”, the Conference will end on Thursday 22nd November 2019 and has attracted over 300 participants from 48 countries of which 38 are from the African continent.
Speaking at the opening ceremony today Tuesday 19th November 2019, Uganda Revenue Authority Commissioner General, Doris Akol said revenue bodies across Africa have a challenge of taxing digital economies.
“For example, Jumia, Google adverts, Facebook adverts, Kikuu, to mention but a few. They are around us, we have all used them in a way or another, and yet we are not registering revenue numbers in terms of collections from them,” Akol said.
She added: “This is because most of our policies had probably overlooked them. For instance, for one to be assessed for tax, they must have a physical address. This is a pre-requisite that doesn’t tally with digital economies because they operate online and barely have a physical footprint, yet they mint lots of money in sales. So as we kick off the 4th International Conference on Tax, we shall centre efforts on innovative ways to handle this sector and harness technology to improve our tax systems.”
She added that the conference theme is timely since digitalised economies have taken the world by a storm and measures on how to mint revenue from them are still a great challenge.
“The ICTA resolutions will inform the global tax debate over the next decade. I believe these discussions will help us craft systems and policies to ease taxation of the digitalized economies. The conference will also look at innovation through use of technology in Africa to strengthen tax systems and develop solutions to broadening the tax base, dealing with high net worth individuals, assessment and collection among others so as to increase tax efficiency and effectiveness,” she said.
On his part, ATAF Executive Secretary, Logan Wort said Sub-Saharan Africa is expected to have 500 million mobile phone subscribers by 2020 and is the fastest-growing region in terms of mobile uptake, according to GMSA estimates.
The estimates further show that by 2020, sim connection to the mobile phone will reach 1 billion.
“That represents almost every African having a mobile phone. The mobile industry also has an important role to play in Africa’s GDP, contributing up to US$110 billion by 2020,” Wort said.
He added that in ATAF’s opinion, the current nexus and profit allocation rules are not ensuring appropriate tax rights for source countries where most African countries fall.
“This is partly due to the increasing digitalisation of the global economy and the African economy which enables non-residents and in particular multinational enterprises (MNEs) to increasingly carry out business in a country with no or very limited physical presence in that country and to create value primarily from intangibles,” he said.
He added: “It is important to emphasize that the current rules provide an inappropriate balance between the taxing rights of residence jurisdictions and source jurisdictions, and are inappropriately skewed in favour of residence jurisdictions. This is encouraging Illicit Financial Flows (IFFs) out of developing countries and Africa in particular, through artificial profit shifting to none or low tax jurisdictions hence the continued loss of taxes Africa needs for vital development.”
He further explained that E-commerce changes the distribution of taxable activities; it poses challenges to the jurisdiction to tax income and alters the balance of taxing authority, resulting in the erosion of countries’ tax bases.
“E-commerce creates difficulties in the identification and location of taxpayers, the identification and verification of taxable transactions and the ability to establish a link between taxpayers and their taxable transactions, thus creating opportunities for tax avoidance,” he said.
Notwithstanding the challenges that are present, Wort said, the digital economy also presents new opportunities for revenue administration to feature innovation in system design for the collection.
“This ICTA therefore presents an opportunity for us to discuss these aspects and how best to manage the challenges and embrace the opportunities. Specifically, tax policy could leapfrog current discussions, and move towards regimes that collect revenue using technology,” he said.
Akol said Uganda is joyous to host the ATAF celebrations on the decade milestone because “we hosted the launch on 19th November 2009 and here we are, 10 years later.”
The African Tax Administration Forum (ATAF) was formed after a Pretoria conference on taxation and state building. The key objective for its launch was the need to take control of the Continent’s development by mobilizing revenue internally.
She revealed that one of the areas ATAF has set a mark is in helping African countries curb illicit financial flows through her ATAF Double Taxation Agreement.
“Many African countries, Uganda inclusive, have been dealt a raw deal from unscrupulous DTAs used by companies to rip developing countries of huge sums of money. Most of these DTAs were drafted following either the OECD Model or UN Model,” Akol said.
She added: “Unlike most of these DTA models, for example the OECD Model Tax Convention that favours developing countries over African economies, the ATAF Double Taxation Agreement seeks to create agreements that favour revenue mobilization for African countries. This model will curb illicit financial flows such as transfer pricing, profit shifting and non-double taxation.”
Commenting on Uganda hosting ATAF 10th anniversary, Ian Rumanyika, URA’s Manager Public & Corporate Affairs said: “The Pearl is proud to host the conference in Kampala, Uganda, the city where ATAF was launched. URA is among the top 25 founding members and among the 6 that sat and made the decision to start ATAF. We hope we will share some of the significant milestones we have had over the 10 years with other revenue authorities. It is not by mistake that ATAF was launched here and we are celebrating 10 years anniversary here; it is because URA has always done things differently and leads the change we need in Tax administration and has been a benchmark for so many revenue authorities in Africa.”