In 2022, Netflix's streaming service made over $135 million in revenue from its 1.6 million African subscribers. In return, the streaming provider paid a whopping $0 in taxes to the 54 countries and territories where it sourced that revenue, raising questions about whether digital service providers (DSPs) should be doing more to shoulder tax responsibility on the continent.
Netflix, Spotify, Meta, Alphabet and other DSPs have all seen their African markets grow since the early 2010s. The companies have accelerated their pursuit of African audiences where a young population and rapid digitalisation position the continent as the next growth frontier after mature and potentially saturated markets like Europe and the Americas.
The slowness of African legislation to adapt to these new technologies has meant that while DSPs pay taxes in developed markets, they have managed to avoid that responsibility in Africa.
“Efficiently collecting the digital service tax will enable African countries to expand their tax base while also not putting pressure on citizens who already bear most of the tax burden,” said Thulani Shongwe, head of African Multilateral Tax Cooperation at the Africa Tax Administration Forum (ATAF). Shongwe was speaking in a panel discussion at the ongoing Sanlam Summer School for Financial Journalists in Johannesburg, South Africa.
Organisations like the ATAF have identified this gap in revenue collection and presented solutions to governments to address it. In June 2020, the forum released a position paper which sought to present suggestions on how African governments can create legislation to collect digital services tax in the region of 1-3% of revenue.
Some of the suggestions the ATAF made to countries include enacting DST as an income tax, modelling their DST after the existing UN Model Tax Convention on digital services, or waiting for a multilateral agreement on digital services collection. Although all these solutions have their practical challenges, one thing they all do is ensure that DSPs pay their share, one way or another.
However, in enacting such legislation, African countries are bound to face pushback from the DSPs. In European countries including the UK, Switzerland and Italy, the companies have, through lobbying and sometimes in courts of law, pushed back on such legislation. They have enjoyed muted success in this regard and in most cases, had to bend their knees to countries’s laws and regulations, showing that they can do the same in Africa.
Africa’s booming and youthful population is its biggest asset in a world where populations are rapidly ageing. As technology takes a foray, its most valuable adopters mostly reside on the continent, presenting market potential for DSPs.To leverage this, African countries should look to get their fair share of revenues from the companies that extract digital value from the continent.
A combination of lax regulations, the complexity of understanding DSPs' business models and pushback from DSPs themselves has seen the continent lose out of millions of potential revenues from digital services in the last decade. However, all is not lost. With organisations like the ATAF having set the ground for how to tax these tech giants, it might be time for Africa to finally get what's rightfully hers.
By Ephraim Modise