To tax or not to tax online businesses

By Ian Rumanyika

Taxation as a tool of good governance allows economies to grow while helping to improve society as a whole. This week during the 4th International Conference on Tax in Africa (ICTA), happening in Kampala-Uganda, 47 African revenue authorities discuss Innovation - Digitalisation and Harnessing Technology to Improve Tax Systems.

You will agree with me, that online businesses and globalisation are growing challenges to traditional tax regimes. Traditionally, goods are usually physical; their production, distribution and consumption is easily taxable. Why? Physical goods are produced at a manufacturing plant, shipped off to wholesalers and boxed on retailers’ shelves, the final consumer walks away with a paid for (and taxed) product. With this, tax collection is in the hands of the wholesalers or retailers. These charge the consumer Value Added Tax (VAT) and then remit this to the government, thus acting as tax agents.

Recently, the changing trends are causing a rumble and a shift from the norm; many businesses are now operating online. Before long, the individuals who should be accountable for the revenue will not be traceable. Most local businesses in Uganda and other African markets advertise their products and services on social media platforms. As a result, government loses a lot of revenue by not taxing local and most significantly international online businesses like Ebay, Facebook, Google Ads, Amazon, Jumia, Olyx, Uber, Be-forward and online car websites among others.

The Internet has and will continue to annihilate borders between countries making businesses virtually invisible and hard to track. A tax solution is therefore inevitable!

Without a doubt, any taxation solution adopted should be efficient, fair, simple, and must have a neutral effect. This is what African revenue authorities are discussing and putting forward during this 4th ICTA conference, hosted by Uganda Revenue Authority.

It is generally accepted that tax rules for sale of intangible products and services should be the same, as those of other goods. The means of delivery should not govern tax treatment. This begs the question, how do we make it fair for everyone, dealing online and offline?

The taxation of e-commerce or online businesses is further made difficult because first, it has an international nature. It is inherently non-territorial. The lack of geographic boundaries has helped increase the amount of e-commerce activity; small sized companies can become international players by using e-commerce without any physical location. With this, comes the issue of tax jurisdiction. We must think of new policies that put all these into consideration.

Taxation is dependent upon, or rather, is interrelated with the issue of residency. For a tax to be imposed on a transaction, the authority that has the role of collecting the taxes has to know where it took place and also to recognize the category in question, goods or services; if not clarified then there may be cases of double-taxation or even multiple taxation.

As revenue authorities, we are awake to these challenges. We are on a quest for answers to these questions. How do we use technology to trace the inevitable taxable digital economy and bring it into the tax bracket so that we, create an equal and fair taxation system for all?

ian.rumanyika@gmail.com

Ian Rumanyika is the Public and Corporate Affairs Manager, Uganda Revenue Authority