Enforcement of tax compliance among the multinational companies in Africa is not getting any easier with the emergence of tech corporate organisations, complicating already wanting non-compliance culture being perpetuated by corporations operating in more than one country.
At the moment, tax prefects across African countries, including Uganda Revenue Authority (URA), are struggling to tax multinational companies with physical presence in the country, many of which are not only heavily involved in key economic sectors such as telecommunication, extractive and manufacturing, but are also domiciled in tax haven jurisdictions where there is little or no tax liabilities at all on taxable income earned anywhere in the continent.
Besides providing safe havens for illicit financial flows (IFFs), tax havens also share limited or no financial information with foreign tax authorities.
Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use, according to the report titled “Tackling illicit financial flows for sustainable development in Africa”.
The situation has now further been complicated with emergence of several high value multinational tech corporations such as Facebook, Google and Amazon, all largely operating in virtual spaces (with no permanent establishment) in almost all African countries.
As a result, continental and regional African revenue prefects have found themselves in unchartered waters once again, this time struggling with how to tap some revenues from digital platforms operating virtually, without permanent establishment, but earning taxable income across the continent.
According to a 2018 PricewaterhouseCoopers (PwC) report, Nigeria, Africa’s most populated country, witnessed an average of 30 per cent year-on-year growth in internet advertisement in the last five years, with a projected internet advertising spending of $125m in the entertainment and media industry in 2020.
The problem the continent is facing, despite being one of the biggest consumers of some technologies, is how to tax the so-called “digital economy” and ensuring that the tech companies contribute to revenue mobilisation efforts in African countries.
This is critical because Africa could gain $89 billion annually by curbing illicit financial flows, according to United Nations Conference on Trade and Development (UNCTAD), permanent organ of the United Nations (UN) General Assembly.
UNCTAD’s Economic Development in Africa Report 2020 further says stopping illicit capital flight could almost cut in half the annual financing gap of $200 billion that the continent faces to achieve the Sustainable Development Goals.
These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft.
Multinational tech companies, such as Google and Facebook, operating legally across Africa, pay substantially lower taxes as a result of obsolete tax rules, according to a three month investigation by Ghana’s Gideon Sarpong and Nigeria’s Olivia Ndubuisi.
The investigation based on interviews with dozens of experts, tax officials, court records and company documents, also established that Facebook had not paid any direct taxes in Ghana and Nigeria since it began operations over a decade ago despite having over 22 million active users in both countries.
Like all tech giant companies, Google, is one of the world’s 10 most profitable companies, but according to the three months investigation, the tech giant goes to extraordinary lengths to minimize its physical presence across continent, making it difficult for revenue authorities to tax it, thanks to the obsolete laws that only compels companies with physical presence to contribute to the tax kitty.
In 2019, Facebook made over $6 billion in revenue from what it labels “rest of the world,” which includes Africa, Latin America and the Middle East.
But apart from South Africa where Facebook is expected to pay direct taxes because of its physical presence and a change of tax laws by the South African government, the remaining 53 countries on the continent will unlikely receive any direct tax payments.
The Team Leader, Youth for Tax Justice Network, Mr Allan Muhereza Murangira, in an interview last week said the revelation of the investigations done in Ghana and Nigeria is a red flag for Uganda and the entire EAC member States.
He said: “These tech companies have made money in African countries such as Uganda either through the value that has been created or transactions that they facilitate in addition to the advertisement revenues. So African countries among them Uganda should be getting their fair share of tax revenue from these multinational tech companies.”
He continued: “The good thing is that regional countries, including Uganda has recognises that there is urgent need to tax the digital economy, considering that seven out 10 biggest companies in the world are tech companies.”
As for the Executive Director, Tax Justice Network Africa, Mr Alvin Mosioma, attention should be given to digital spaces because there is a global shift towards doing business online. As we speak, seven out of 10 high value companies globally are tech multinational companies with massive online transactions.
“We want to start these conversations and ensure that we bring these tech companies to pay their due taxes, the same way other business with physical presence and visible products do,” he said.