Why report is likely to up big tech taxation appetite

Friday, May 21st, 2021 00:00 | By
Johnson & Johnson
Johnson & Johnson.
Johnson & Johnson

The debate around taxation policy in the digital economy is likely to intensify after a new report showed that top economies lose up to $32 billion (Sh3.5 trillion) a year in tax revenue from the globe’s five biggest tech companies.

According to a study released yesterday by the human rights group ActionAid, these funds would cover the costs of two full-dose vaccinations against Coronavirus (Covid-19) for every human being on the planet.

The international NGO analysed available tax information on Alphabet, Amazon, Apple, Facebook and Microsoft— five of the world’s largest tech companies— to show potential revenue that could be generated by a tax regime which more accurately reflects these companies’ global economic presence. 

“At a time when governments are desperately looking for revenue to fund Covid-19 response expenses, not leveraging this potential tax resource is a missed opportunity,” the authors of the report wrote.

The report came ahead of today’s G20 leaders meeting in Rome for a health summit to discuss the coronavirus pandemic and future global health security. 

Opinion in Kenya is still divided over the implementation of the digital services taxes (DST) as the government eyes digital market place operators for 1.5 per cent of their gross transaction value.

The tax was introduced in the country through Finance Act, 2019 and enacted through Finance Act, 2020 with an effective date of January 1, 2021.

Kenya Revenue Authority (KRA) says the tax can generate $19 million (Sh2 billion) annually, and help fund a Sh3 trillion financial year 2020/2021 budget.

Digital marketplaces

This, it adds can be realised by taxing digital marketplaces that connect buyers and sellers, streaming and downloading of digital content such as music, media-based subscriptions like e-journals, electronic data management and online ticketing, among others.

However, audit firm PwC Kenya says DST needs to be streamlined by addressing registration, payment and appointment of tax representatives, which has not yet been configured on the Kenya Revenue Authority (KRA) iTax platform and could compromise implementation of the new levy.

Nicholas Kahiro, the PwC manager and corporate tax specialist reckoned the new levy will subject non-resident entities to register in their own capacity, which attaches a liability to their directors.

“This means that on the itax system, appointment of tax representatives has not yet been configured thus it forces foreigners to register themselves as directors, which then raises the amount of tax to be paid for,” said Kahiro.

DST is a prerequisite of value added tax (VAT) registration for digital marketplace supplies.

Entities not subject to DST will be required to register, and can lead to administrative complexities and unnecessary questions from the KRA, he added.

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