Business & Finance

Digital Taxation Troubles Tech Businesses in African Countries

NAIROBI, KENYA - More and more African countries are taxing digital platforms and mobile money transfers to fund economic development.

Nigeria is the latest country to join the trend, with a new 5% tax on items bought online. It wants banks to deduct the tax from online transactions for the government.

Segun Abiona is the founder of Nicole and Giovanni, a Nigerian company that sells men's accessories. He says more taxes will reduce the gains he has made.

"It's a form of double taxation on us because if you tax every transaction that comes online we still end up paying taxes, which is 5% VAT (value-added tax), 5% of every sale we make in terms of VAT, Abiona said. It is going to discourage internet purchases knowing we are fully grown in terms of online space. We are still trying to encourage more people to shop online and at the same time eradicate the fear of people being get scammed online."

According to some business analysts, at least 100 million people on the continent use mobile financial services.

Abiona fears for the future of his business if the government implements the 5% tax for online sales.

"A lot of businesses will have to close down small-scale businesses, they are practically online, almost everybody is online, Abiona said. So if at any point in time you have most them having to pay double taxes on top of transactions they are doing, it doesn't make any good sense."

Technology companies in Africa already face infrastructure challenges and the Internet in some places is slow and expensive.

A year ago, the Ugandan government imposed heavy taxes on social media use, forcing millions to abandon some platforms such as Twitter and WhatsApp. Ugandan authorities say they introduced the tax to curb idle talk, but some government critics viewed it as an effort to stop dissent.

In neighboring Kenya, the government has been increasing taxes on mobile money transfers. And this month the Kenya Revenue Authority said it will start taxing many applications developed and downloaded in the country.

The head of Kenya's Institute of Economic Affairs, Kwame Owino, says people will find ways to avoid paying taxes for using digital platforms.

"So people may decide if you are going to tax too much [the] transfer of money from one person to another, then people may go back using the informal methods, Owino said. So part of it is that transactions will go back down to [lower] levels, it may also affect savings in the formal sector area in the sense that if you have to transfer money and all that, they may decide to do mattress banking as they always did. People feel the government is using [taxes] for social control and surveillance, that's the biggest risk."

With more countries taxing the use of technology, many economists and digital users fear business growth could take a big hit.

Source: Voice of America