Africa-Press – Namibia. AS THE WORLD continues to evolve to being more digital, everything from the way we purchase and consume media to the way we bank is affected – even how we tax and pay such taxes.
But, as the way we buy and sell changes, the implications are deeper than just developing a secure payment gateway.
In fact, the entire way that tax works needs to shift.
It’s not just tax revenue authorities which are looking at this issue – given that a huge number of transactions worldwide occur within multinational entities, these companies are also taking part in the dialogue actively.
Ultimately, taxation affects almost everyone, so although it’s perhaps not an exciting subject to many people, it is an important one.
The source and residence concepts have underpinned the legal basis upon which states assert taxing rights.
However, the world has borne witness to the rapid spread of globalisation and the current wave of digital technology.
Questions of how taxation should change in the digital era are underway globally and are being led by the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN).
There’s no real consensus at the moment about digital taxation.
There’s a need for southern African businesses and regulators to be part of the debate to position the countries as best as possible for a new tax era.
It is also increasingly difficult to pin down the location of a source of income, or where a taxpayer resides.
This ambiguity in turn has led to increased compliance risks, as aggressive tax avoidance schemes are increasing.
The complexities of taxing digital services are therefore that traditional tax models generally fall into one of two categories: residence tax or source taxation.
Residence tax is based on the idea that people and companies should contribute towards the public services provided to them by the country they live in – no matter where their income originates from. South Africa is a good example of this model.
Source taxation, on the other hand, is based on the idea that the country in which the income is generated is providing that opportunity, and should therefore be able to levy tax.
Namibia is a good example of this model.
However, it’s difficult to use either of these models in relation to digital services, because consumers in one country may access a product or service without the supplier of that product or service physically being present in the country.
If one thinks about music, previously we would go to a music shop and buy a compact disc (CD), but now the majority of us probably subscribe to a streaming service.
In the case of purchasing a physical CD, we were probably paying value added tax (if the seller is a VAT vendor), but now we’re not paying any tax at all, although we are still purchasing and consuming the product in the country.
This is why some regulators are trying to clamp down on taxing digital services.
For example, South Africa’s new regulation on VAT on electronic services, which took effect on 1 April 2019, widens the definition of what is considered an electronic service to include any services supplied by means of an electronic agent, electronic communication, or the internet for any consideration.
THE MTD INITIATIVE
‘Making Tax Digital’ (MTD) is an initiative that sets out to end paper tax returns and to transform to a digital tax system.
The main goal of MTD is to make tax administration more effective, more efficient, and simpler for taxpayers.
Implementing the initiative is working closely with accounting software developers to ensure that taxpayers are able to make the switch to digital tax.
The outlined changes apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people and landlords, as well as individual taxpayers.
Under MTD, taxpayers will send the tax authorities summaries of their income and expenditure more frequently to enable a more ongoing and accurate projection of tax due to their digital tax accounts.
Digital technology facilitates increased interconnectedness of the globe as a result of the faster exchange of information.
This has meant greater reliance on international tax law, because domestic tax regimes typically do not evolve at the same pace as global trends.
In some cases, this has resulted in international tax law shaping domestic tax regimes. The dynamic between international and domestic tax is changing rapidly.
Domestic tax law in some cases is proven to be insufficient to respond to the global realities of industries, business and revenue authorities.
Tax professionals must be adaptive, increasingly internationalist in outlook – moving beyond the silo, narrow provincial perspective when providing advisory or consulting services.
The making-tax-digital evolution at tax authorities would make it more viable for businesses to pay their taxes, since it would involve a less manual system.
The digitisation of the tax environment means being able to file and settle your taxes digitally instead of manually.
This would also ease pressure on the environment by reducing the consumption of paper and paper products in the process, making both government and business operations more environmentally sound.
OPPORTUNITIES
Digital technology creates greater opportunities for businesses expanding across the globe as more people are exposed to accessing business products or services.
It also potentially gives rise to schemes of aggressive tax planning to avoid or evade paying taxes.
An increasingly digitalised world means the lines between where a taxpayer is a resident, and where their dominant source of income is, have become blurry.
The ambiguities and uncertainties digital technology can create have resulted in jurisdictions witnessing their tax bases being eroded, or profits being shifted from their states through the use of double tax treaties.
The digitisation of tax would lead to a quick turnaround time for tax professionals in reviewing records and accounts, thus the operation of tax administrations would improve, and would spare capacity to allow tax professionals to focus on other relevant tasks within the tax industry.
The digitisation of tax would lead to a competitive advantage of information technology (IT) skills, and would demand that tax professionals undergo large-scale training for additional skills and create a whole industry of taxation and IT, which may become a field of study one day.
This would enhance the passion of tax professionals and aspirant tax professionals.
Digital technology may minimise the cost of establishing a global presence due to the minimal infrastructure needed, however, the tax cost of operating in multiple jurisdictions may become significant.
Naturally, companies will seek to minimise the tax costs of international investments and trade.
In this respect, there may be the temptation to engage in treaty shopping by utilising tax treaty networks to only pay taxes in jurisdictions with the lowest rates.
However, this form of tax planning is increasingly coming under scrutiny, and companies now have to meet substantive compliance burdens or risk being on the wrong side of the law and potentially facing fines.
MTD would assist taxpayers in having a direct link with their tax authorities by only logging onto their systems, and in knowing exactly what type of services they would require from their tax consultants/tax professionals.
The best system must undergo a feasibility study that does not allow companies to understate their tax liabilities.
Despite digital technology’s capacity to transcend borders and build bridges, recent years have seen the world increasingly polarised by growing inequalities, which have eroded trust between business and civil society as the opportunities spurred on by globalisation and technology seem to only benefit an elite few.
Taxation has come under heavy scrutiny as it begins to feature prominently in public discourse – whether in debates around big corporations avoiding tax, utilising taxation as a way to fairly redistribute income, or to foster development and the provision of social services.
In such an age, it would be incumbent on tax professionals across industries to have a greater global outlook and social mindfulness, an understanding of how the world is tied together through an appreciation of global trends, and an adaptive, ethical mind-set to advise various industries effectively.
These are the types of issues that are being looked at by the OECD.
The final consensus on outcomes is expected to be finalised.
While it would have a big impact on business, digitalisation could help southern African businesses to enter new markets and achieve higher levels of growth and development than previously available.
The important thing is to find ways of using digitalisation to work better and smarter.
As value chains evolve, companies need to reassess the way they operate to remain competitive in the digital environment
* Primus (Prime) Shaapopi is a chartered accountant with an interest in taxation.
But, as the way we buy and sell changes, the implications are deeper than just developing a secure payment gateway.
In fact, the entire way that tax works needs to shift.
It’s not just tax revenue authorities which are looking at this issue – given that a huge number of transactions worldwide occur within multinational entities, these companies are also taking part in the dialogue actively.
Ultimately, taxation affects almost everyone, so although it’s perhaps not an exciting subject to many people, it is an important one.
The source and residence concepts have underpinned the legal basis upon which states assert taxing rights.
However, the world has borne witness to the rapid spread of globalisation and the current wave of digital technology.
Questions of how taxation should change in the digital era are underway globally and are being led by the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN).
There’s no real consensus at the moment about digital taxation.
There’s a need for southern African businesses and regulators to be part of the debate to position the countries as best as possible for a new tax era.
It is also increasingly difficult to pin down the location of a source of income, or where a taxpayer resides.
This ambiguity in turn has led to increased compliance risks, as aggressive tax avoidance schemes are increasing.
The complexities of taxing digital services are therefore that traditional tax models generally fall into one of two categories: residence tax or source taxation.
Residence tax is based on the idea that people and companies should contribute towards the public services provided to them by the country they live in – no matter where their income originates from. South Africa is a good example of this model.
Source taxation, on the other hand, is based on the idea that the country in which the income is generated is providing that opportunity, and should therefore be able to levy tax.
Namibia is a good example of this model.
However, it’s difficult to use either of these models in relation to digital services, because consumers in one country may access a product or service without the supplier of that product or service physically being present in the country.
If one thinks about music, previously we would go to a music shop and buy a compact disc (CD), but now the majority of us probably subscribe to a streaming service.
In the case of purchasing a physical CD, we were probably paying value added tax (if the seller is a VAT vendor), but now we’re not paying any tax at all, although we are still purchasing and consuming the product in the country.
This is why some regulators are trying to clamp down on taxing digital services.
For example, South Africa’s new regulation on VAT on electronic services, which took effect on 1 April 2019, widens the definition of what is considered an electronic service to include any services supplied by means of an electronic agent, electronic communication, or the internet for any consideration.
THE MTD INITIATIVE
‘Making Tax Digital’ (MTD) is an initiative that sets out to end paper tax returns and to transform to a digital tax system.
The main goal of MTD is to make tax administration more effective, more efficient, and simpler for taxpayers.
Implementing the initiative is working closely with accounting software developers to ensure that taxpayers are able to make the switch to digital tax.
The outlined changes apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people and landlords, as well as individual taxpayers.
Under MTD, taxpayers will send the tax authorities summaries of their income and expenditure more frequently to enable a more ongoing and accurate projection of tax due to their digital tax accounts.
Digital technology facilitates increased interconnectedness of the globe as a result of the faster exchange of information.
This has meant greater reliance on international tax law, because domestic tax regimes typically do not evolve at the same pace as global trends.
In some cases, this has resulted in international tax law shaping domestic tax regimes. The dynamic between international and domestic tax is changing rapidly.
Domestic tax law in some cases is proven to be insufficient to respond to the global realities of industries, business and revenue authorities.
Tax professionals must be adaptive, increasingly internationalist in outlook – moving beyond the silo, narrow provincial perspective when providing advisory or consulting services.
The making-tax-digital evolution at tax authorities would make it more viable for businesses to pay their taxes, since it would involve a less manual system.
The digitisation of the tax environment means being able to file and settle your taxes digitally instead of manually.
This would also ease pressure on the environment by reducing the consumption of paper and paper products in the process, making both government and business operations more environmentally sound.
OPPORTUNITIES
Digital technology creates greater opportunities for businesses expanding across the globe as more people are exposed to accessing business products or services.
It also potentially gives rise to schemes of aggressive tax planning to avoid or evade paying taxes.
An increasingly digitalised world means the lines between where a taxpayer is a resident, and where their dominant source of income is, have become blurry.
The ambiguities and uncertainties digital technology can create have resulted in jurisdictions witnessing their tax bases being eroded, or profits being shifted from their states through the use of double tax treaties.
The digitisation of tax would lead to a quick turnaround time for tax professionals in reviewing records and accounts, thus the operation of tax administrations would improve, and would spare capacity to allow tax professionals to focus on other relevant tasks within the tax industry.
The digitisation of tax would lead to a competitive advantage of information technology (IT) skills, and would demand that tax professionals undergo large-scale training for additional skills and create a whole industry of taxation and IT, which may become a field of study one day.
This would enhance the passion of tax professionals and aspirant tax professionals.
Digital technology may minimise the cost of establishing a global presence due to the minimal infrastructure needed, however, the tax cost of operating in multiple jurisdictions may become significant.
Naturally, companies will seek to minimise the tax costs of international investments and trade.
In this respect, there may be the temptation to engage in treaty shopping by utilising tax treaty networks to only pay taxes in jurisdictions with the lowest rates.
However, this form of tax planning is increasingly coming under scrutiny, and companies now have to meet substantive compliance burdens or risk being on the wrong side of the law and potentially facing fines.
MTD would assist taxpayers in having a direct link with their tax authorities by only logging onto their systems, and in knowing exactly what type of services they would require from their tax consultants/tax professionals.
The best system must undergo a feasibility study that does not allow companies to understate their tax liabilities.
Despite digital technology’s capacity to transcend borders and build bridges, recent years have seen the world increasingly polarised by growing inequalities, which have eroded trust between business and civil society as the opportunities spurred on by globalisation and technology seem to only benefit an elite few.
Taxation has come under heavy scrutiny as it begins to feature prominently in public discourse – whether in debates around big corporations avoiding tax, utilising taxation as a way to fairly redistribute income, or to foster development and the provision of social services.
In such an age, it would be incumbent on tax professionals across industries to have a greater global outlook and social mindfulness, an understanding of how the world is tied together through an appreciation of global trends, and an adaptive, ethical mind-set to advise various industries effectively.
These are the types of issues that are being looked at by the OECD.
The final consensus on outcomes is expected to be finalised.
While it would have a big impact on business, digitalisation could help southern African businesses to enter new markets and achieve higher levels of growth and development than previously available.
The important thing is to find ways of using digitalisation to work better and smarter.
As value chains evolve, companies need to reassess the way they operate to remain competitive in the digital environment
* Primus (Prime) Shaapopi is a chartered accountant with an interest in taxation.
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