Job Kabochi | Leader | Indirect Tax | PwC Africa | mail me |
Twenty-one African countries have already enacted rules for non-resident suppliers to account for Value-Added Tax (VAT) / Goods and Sales Tax on electronically supplied services.
The digital economy is more than just technology and the internet. In today’s ever-evolving business environment, organisations that are leveraging the tools and benefits of the digital economy are proving to be more adaptable and resilient.
Rules of taxation no longer being adequate
Across Africa and globally, the digital economy is transforming the way that businesses are operating, interacting with their consumers and competing on a global scale. Today, generative AI (genAI) is heavily influencing the development of the digital economy, and this is something that business leaders are very cognisant of.
In our 27th Annual Global CEO Survey, CEOs said they are overwhelmingly seeing genAI as a catalyst for reinvention that will power efficiency, innovation, and transformational change, while nearly three-quarters (70%) said they believe it will significantly change the way their company creates, delivers and captures value in the next three years.
Today, an increasing number of transactions and activities are being conducted across borders and online through digital platforms. This has resulted in the traditional concepts and rules of taxation no longer being adequate for revenue authorities to tax digital service providers.
Tax authorities are well aware of Africa’s growing digital economy, and when digital activities and transactions take place within their jurisdictions (or with residents of their jurisdictions), authorities have a vested interest in collecting tax revenue from these activities while hopefully avoiding double taxation, double non-taxation, tax evasion and erosion of the tax base.
To that end, several African countries have introduced or amended their VAT / Goods and Sales Tax (GST) and other indirect tax laws and regulations to tax the digital economy. This has been done by expanding the scope of taxation to cover electronic services supplied by non-resident providers to local consumers.
Different tax policies in different countries
In our newly launched 2024 VAT Guide in Africa – Digital Services publication, we take a closer look at the taxation of the digital economy in Africa. The publication is a special edition of our VAT in Africa Guide, which is an annual report that focuses on new rules and measures that have been introduced to tax the digital economy by countries across Africa, especially for electronically supplied services (ESS) across borders.
Currently, there is no uniform or harmonised approach to taxing the digital economy in Africa. Different tax policies in different countries reflect significant variations and complexities in their definitions of services liable to tax, value thresholds, and tax rates and requirements associated with registration, compliance and enforcement.
Non-resident suppliers of ESS often find that increasingly, most countries in Africa are taxing both Business-to-Business and Business-to-Consumer supplies. Additionally, the legal framework in many countries remains fluid with regard to the definition and scope of services that qualify for taxation as digital supplies.
In short, rules and measures may not align to internationally accepted best practices and therefore create uncertainty, confusion and controversy for both tax authorities and taxpayers.
Africa’s expanding digital penetration
Africa’s digital transformation is continuing to reshape economies and societies. Soaring rates of mobile phone penetration and the rapid adoption of mobile technologies, rising levels of internet access and the innovative spirit of Africa’s entrepreneurs are all contributing to this ongoing transformation.
Smartphone adoption in particular has enabled access to the internet – even in remote areas – and has facilitated mobile banking and e-commerce among many other services. Digital transformation efforts have also fostered the emergence of local tech hubs and startups that are developing solutions for unique challenges and opportunities across Africa, while digital education platforms are also addressing some of the gaps in Africa’s educational systems and providing scalable opportunities for learning and development. These efforts are a clear indication that Africa’s digital transformation is continuing to significantly contribute to the continent’s economic growth, innovation and improved quality of life.
– Matthew Besanko, Indirect Tax Leader at PwC South Africa
The World Bank estimates that Africa’s digital economy could contribute up to $180 billion to GDP by 2025 and create millions of jobs and opportunities for entrepreneurs – particularly for the youth and women.
As the digital economy continues to evolve, and as tax authorities continue to adjust to Africa’s remarkable digital transformation, it is essential for businesses to understand and closely monitor tax developments affecting the digital economy in every country where they supply digital services.
– Pamela Natamba, Tax Partner at PwC Uganda
Of the 54 countries in Africa, 21 have already enacted rules for non-resident suppliers to account for VAT/GST on ESS with five more countries (Botswana, Ethiopia, Mali, Republic of Congo and Rwanda) in the pipeline. In this special edition of our VAT in Africa Guide publication, we cover what non-resident suppliers of ESS need to be aware of, from the basic scope of rules to practical and administrative insights.
*This publication is based on the information available as of 15 March 2024, and is subject to change as new developments and information emerges.
