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Prosper Ndlovu in Kampala, Uganda
Zimbabwe and its African peers are worried over the declining Value Added Tax (VAT) revenue earnings on the back of a fast growing digital/electronic trade, popularly known as e-commerce, whose taxation is not clearly covered under existing regulations.

Intense discussion on the matter took centre stage here at the 4th International Conference on Tax in Africa, as regional tax administrators, academics and policy makers sought avenues of harnessing the digital tax dividend through embracing innovation and technology.

Zimbabwe Revenue Authority (Zimra) commissioner general, Ms Faith Mazani, who is among the top delegates and her team, also made a presentation on Wednesday where she highlighted the challenges the country is facing in taxing the growing tide of intangible digital products and services.

She said the country was losing potential revenue to online shopping, digital payments and startups that are operating outside the tax bracket.

Her peers from the region also expressed the same sentiments. The regional mood was fully captured in a collective conference outcome statement at the close of the high-level tax indaba yesterday.

The meeting observed that when countries introduced VAT, there was a huge jump in revenue but worriedly noted the gains are being eroded by unregulated digital trading.

“Revenue shot up and immediately went down as a result of more significant trading through e-commerce, which existing VAT legislation had not previously foreseen.

“While e-commerce has resulted in decreased VAT revenue collections, it has provided authorities with an opportunity to enhance the audit trail through the use of data-driven methodologies,” reads the outcome statement.

Tax administrations, therefore, resolved to take advantage of this opportunity to strengthen audit capabilities, mainly where countries are willing to procure effective systems. “The meeting agreed that as a result of digitalisation, African countries should be able to apply VAT/GST (goods and service tax) on digital services acquired by their citizens from suppliers outside their jurisdictions.

“As the norm in international trade for VAT/GST systems is the destination principle, participants agreed that countries should apply the destination principle to services and intangibles acquired from overseas businesses.”

Similar to South Africa, which has already applied VAT on digital services, participants felt that African countries should require foreign suppliers of digital services to VAT in their countries. Nonetheless, the conference acknowledged the potential challenge of enforcing collection of such VAT, hence, the need for investing in technologies to track the transactions digitally.

As a result of the various changes in policy and law brought about by digitalisation, delegates called on African governments and tax administrations to improve engagement with the private sector. Although the private sector is deemed in many countries as being on the other side of the fence, the meeting recognised that they were essential stakeholders in the tax collection process, and their involvement provides policymakers with a business perspective of the issues, which is invaluable to policy design.

“The engagement of private actors will also reduce the uncertainty that may harm business decisions,” reads the statement.

Delegates further recognised that private sector players in Africa, including the African Industries Tax Association, need to understand the global tax debate of taxing the digitalised economy. They stressed the need for African governments and ATAF to top in African industries in the discussions as businesses can add a lot of practical business inputs and systems expertise.

According to the African Tax Outlook (ATO) 2019 Report, which was officially launched at the close of the conference and covers revenue statistics from 34 African tax administrations, VAT is the most significant contributor to tax revenue in most states at regional average 34 percent in 2017 followed by personal income tax at 17 percent and corporate income tax at 15 percent, the first two being also the most stable taxes.

The report indicates average tax-to-GDP ratio was 15 percent in 2017, a decline from 16 percent reported in 2016, with countries in the EAC and ECOWAS regions taking the lead.