Income Taxation of the Digital Economy: The Advantages and Disadvantages of Digital Services Taxes from an African Perspective

What the paper says

As the digital economy continues to evolve, so does the ability of multinational entities (MNEs) to avoid taxes. The incidence of tax avoidance is more acute in those jurisdictions where they do not have a physical presence which is a prerequisite for taxation rights for source jurisdictions under current international taxation norms. This compounds the domestic resource mobilization conundrum of most low-income countries (LICs) of which the majority are invariably African jurisdictions at a time when the Covid-19 pandemic and the recent Trump administration’s United States Agency for International Development (USAID) cuts have resulted in a drastic decline in overseas development aid. Some African states have also adopted the first-mover advantage of implementing digital services taxes (DSTs) in a replication of efforts to alleviate the tide of MNEs’ base erosion and profit shifting (BEPS) activities by some western source jurisdictions. This research explores the DSTs that have recently been implemented by some African territories in terms of their challenges, advantages, and disadvantages. Though their disadvantages are quantitatively superior to their advantages, the latter seem to enjoy qualitative preeminence since the African jurisdictions that have implemented them have reduced MNEs’ BEPS activities, enhanced their domestic resource mobilization exertions and, most importantly, have managed to expedite multilateral cooperation efforts to resolve the current imbalances in international taxation.