Africa-Press – Tanzania. VAT is a major source of revenue to governments in Africa. According to Tax watch, VAT accounts for 30 per cent of the total African governments’ revenue.
As such, VAT is a broad based tax on the final consumption of goods and services. Normally, this tax is based on the location of the consumer. Usually, the tax is collected by the seller.
However, VAT collection and compliance on digital services has been tedious and challenging to tax administrators in Africa. Contrary to VAT on goods imported through physical borders which could be subjected to customs checks and collection of VAT.
Digital services provided remotely by non-resident providers are not subjected to border checks. That said it is vividly clear that in business to business (B2B) supplies of imported electronic services in Tanzania requires the consumer to self-assess for VAT via reverse charge mechanism and remit the tax due to TRA.
Arguably, an end consumer in business to consumer (B2C) supplies of imported electronic services will not have the same obligation and in most cases receive the supplies without incurring a VAT charge in Tanzania.
This is yet another setback to TRA in their quest for revenue optimization via VAT on digital services provided by non-resident suppliers with no fixed place of business in Tanzania.
Profoundly, the OECD global forum on VAT of 2012 resulted in the publication of guidelines for VAT in 2016. Thus, the OECD recommended that countries adopt the guidelines to assist in combating tax avoidance in the digital sector. The OECD guidelines included the destination principle.
As such, the destination principle obliges non-resident suppliers to pay VAT in the country where their goods and services are consumed. In principle, this requires overseas sellers to appoint an agent responsible for their VAT compliance in the jurisdiction of consumption.
In July 2019, the council of foreign relations reported that Africa had over half a billion monthly internet users more than North America, Latin America and the Middle East.
This tells of the plethora of Africa markets to big tech companies. Arguably, VAT on digital service challenges will expand proportionally to internet penetration in Africa.
Concurrently, S.51 (1-(2) of VAT Act, Cap 148 [RE: 2020] provides that supply of electronic services to a customer who is not a registered person shall be treated as a supply made in the mainland for VAT compliance.
In particular, S.51 (2) of Cap 148 [RE:2020] unequivocally states that electronic services received by a person in mainland Tanzania who effectively uses, and enjoy, shall expound services delivered through telecom networks, such as websites, web hosting, remote maintenance of programmes and equipment, software, access to the database, self-education packages, music, film, games and so forth.
Categorically, S.64 Cap 148 [RE: 2020] obliges all non-resident who makes a taxable supply in Mainland Tanzania to pay VAT. Explicitly, S.64 of VAT Act, Cap 148 [RE:2020] requires a non-resident who carries on economic activity in mainland Tanzania without having a fixed place in Mainland Tanzania and makes a taxable supply is liable to appoint a VAT representative in Main Land Tanzania.
Conversely, big tech giants such as Facebook, Google and Microsoft who operates in our market jurisdiction through their Irish subsidiaries fail to comply with our VAT legal requirements on sales they make in Tanzania and even to countries where they have offices.
Accusatorially, this trend contravenes the OECD guidelines on VAT and S.64 of Tanzania VAT Act, Cap 148 [RE: 2020]. Unenthusiastically, this occasions revenue leakage especially on business to customer (B2C) transactions where there is no reverse charge mechanism.
According to Tax watch, big tech giants argue that they are not collecting VAT on the sales they make in Africa because there is no legal obligation for them to do so from African countries.
Countries like Ghana, Kenya, South Africa, Namibia, Nigeria, Kenya and Tanzania to mention but a few have categorically inserted legal provisions in their VAT that oblige all non-resident companies supplying taxable electronic services without having a fixed place of business to appoint a local representative in the market jurisdiction.
Seemingly, it is vivid that the issue surrounding supplies of electronic service by non-resident corporations with no fixed place of business in market jurisdiction lies on compliance and enforcement rather than to law as deemed by big tech companies.
Interestingly, Nigeria VAT regime obliges non-resident companies operating in its market jurisdiction to include VAT in their invoice and the person to whom the services are supplied in Nigeria shall remit the same to the tax authority.
Regarding Nigeria legal requirements, the country has not yet registered any compliance from the big tech companies operating in their market jurisdiction to date.
Consequently, the quest for VAT registration to digital service companies has triggered a big tech stand that ‘customers should self-assess whether they should be paying VAT in their jurisdiction.
In another development, Facebook began adding VAT to its entire invoice made to Cameroun in 2020, South Africa, Zimbabwe and since April 2021 to all invoices made to Kenya. However, Microsoft and Google have not followed the suit yet.
On the face of it, Google, Face book and Microsoft run Europe, the Middle East and Africa (EMEA) out of Ireland. Despite Africa being a notable source of revenues to EMEA, the continent is treated differently by these MNEs.
According to Tax Watch, the purchase of Google advertisement space in the UK was accompanied by an invoice including VAT.
Contrariwise, Google does not charge VAT on purchases made in most parts of Africa. Fundamentally, in African countries, customers seeking information on VAT on the Google website are told that Google can’t charge VAT if the respective customer billing address is in a country that is not part of Europe.
This is incorrect because the company charges VAT on the South Africa account. Instead, customers not within Europe and South Africa are told to self-assess whether they are liable to pay VAT in their jurisdiction.
Usually, this is meant to increase sales to Google but occasionally lead to revenue leakage in business to consumer (B2C) transaction in case customers fail to assess themselves for VAT compliance.
Chiefly, Tanzania acting in concert with African Tax Administration Forum (ATAF) should engage big tech giants to make purchases of their advertising spaces in Africa VAT inclusive in the billing invoice.
Moreover, TRA and TCRA should determine the path taken by Kenya, Cameroon, South Africa and Zimbabwe to oscillate Facebook to include VAT to invoice made in their jurisdiction.
Definitively, African countries through AU should think of introducing tax compliance enhancing mechanisms such as ‘tax shaming’, too big tech companies operating in our online market jurisdiction.
Unequivocally, studies have shown that ‘firms or their top executives face significant reputational costs from tax shelter involvement’ when exposed to tax shaming. Thus, this would be a notable panacea.
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