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African governments now want to tax your Netflix and Chill

The protagonist of the show Chewing Gum is in a supermarket aisle reading something on her phone in shock.
Netflix
There is a new trend of African countries taxing the use of e-commerce and digital companies such as Netflix, Google, YouTube and Amazon.
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Zimbabwe and Nigeria are the latest African countries to lay out plans for the collection of taxes from e-commerce and digital companies such as Netflix, Google, YouTube, and Amazon.

This comes after a much criticized push by African governments to tax digital payments and mobile money usage as cash strapped governments seek to broaden revenue collection during the pandemic.

Kin Mungai, a senior research analyst at the Center for Financial Regulation and Inclusion (Cenfri) told Quartz that taxing e-commerce and fintech platforms in this nascent stage is working against the growth and adoption of such platforms.

“The key is to promote digital payments and e-commerce and we are still at that stage in most African countries where a lot of people are still being introduced to e-commerce. [This has to do with] issues of access to devices and the cost and quality of internet connectivity,” Mungai said.

First e-payments and mobile money, now e-commerce and digital media

Despite this, digital services such as online streaming, digital advertising, and e-commerce among others are increasingly being taxed across the continent, mostly in the form of a Value Added Tax (VAT) levy. This month, Nigerian finance minister, Zainab Ahmed unveiled plans to tax international digital and e-commerce companies that offer services to locals at a rate of about 6% of turnover.

Zimbabwe is also set to start taxing international content sites such as YouTube and advertisers on platforms such as Facebook as well as e-commerce transactions, joining Uganda in the African race to expand revenue collections to boost state coffers.

In a public notice dated Jan. 19, Zimbabwe ICT minister, Jenfan Muswere said the southern African country had entered into a public-private partnership agreement with Daedalus World Limited of Tortola, British Virgin Islands to provide “revenue collection service through taxing qualifying companies” in digital services, including cryptocurrencies.

Owing to hyperinflation and currency woes, cryptocurrency use has been blossoming in Zimbabwe despite the government banning banks from transactions involving the digital assets.

Zimbabwe joins South Africa which already taxes cryptocurrency trade and investment. Zimbabwe has however not yet legalized trade in cryptocurrencies such as bitcoin. South Africa meanwhile is also forging ahead with plans to tax companies such as Netflix if President Cyril Ramaphosa is to have his way.

In 2020, Ramaphosa published a report that among other tax recommendations, includes a new digital tax for companies such as Netflix, Amazon, and Facebook.

Over in east Africa, Kenya’s revenue service has a notice on its website of a Digital Service Tax (DST) that “is payable on income derived or accrued in Kenya from services offered through a digital marketplace” (pdf). It defines digital marketplaces as platforms “that enable direct interaction between buyers and sellers of goods and services through electronic” means.

“Digital Service Tax was introduced in the Finance Act 2020, and becomes effective from 1st January 2021 (at) a rate of 1.5% of the gross transaction value.” The tax targets resident and non-resident digital service providers.

Cameroon is also another country where digital and e-commerce taxes “already exist for services billed in Cameroon,” said Steve Tchoumba, a tech entrepreneur with expertise on Cameroon and a board member for AfriLabs.

However, there are complications whereby some content creators on YouTube and Facebook are monetizing their pages outside of Cameroon, making it difficult for the government to effectively implement the e-commerce and digital levies on these.

“These platforms like YouTube have not yet activated payment in Cameroon and a lot of the content creators on Facebook and YouTube here have created accounts in France or US for payment for the content– only then can the government implement the tax effectively,” Tchoumba told Quartz.

It is very likely that more African countries will in the future implement similar taxes given the growing importance of digital services, e-commerce and e-payments on the continent.

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