• Designing digital taxes – ATAF guidance published

    B.M.R. On

    ATAF has just published its suggested approach to drafting digital services tax legislation. The document is available on its website.

    At the recent ATAF – African Union Commission High Level Policy Dialogue (held at the end of August), we were told to expect the document. It was released earlier today.

    The document provides drafting guidance for African countries seeking to introduce digital services taxes. Quite a few countries have done so already, or are in the process of introducing them, for example, Nigeria, Kenya, and Tunisia. Others will obviously wish to follow suit.

    Drafting the legislation is the ‘easy’ bit. Beyond that, there are many challenging parts, not least implementation. It is tempting for governments to focus on the ‘much-needed revenue’ they imagine they are losing due to the digitalised economy. However, when it comes to domestic resource mobilization, there are far more pertinent issues for African economies, such as the formalization of the informal economy. I would argue that African governments would be better served focusing on those for now. That would be a far better use of scarce tax administration resources.

    Also, given the efforts currently underway to find a global consensus solution for taxing digitalised businesses, it might be worth waiting it out, to see what the OECD Inclusive Framework comes up with. There’s almost no point going to the trouble of designing and implementing a complex digital services tax, only to have to repeal it once a global solution is implemented.

  • OECD Forum on Tax Administration – possible Covid-19 relief measures

    B.M.R. On


    The OECD Forum on Tax Administration has produced a list (pdf) of possible Covid-19 measures for tax administrations to consider.

    These are not recommendations; they are more in the way of helpful suggestions. The OECD is, of course, aware that not all of these measures would be possible in every country. 

    So here’s the list:

    • Extension of deadlines – for submitting returns and paying taxes;
    • Deferral of payments of tax;
    • Suspension and / or refund of interest and penalties (e.g. for late payments and returns);
    • Provision of debt payment plans;
    • Suspension of debt recovery;
    • Expediting tax refunds;
    • Provision of early tax certainty;
    • Relaxation of audit policies;
    • Provision of enhanced taxpayer services;
    • Clear communication strategies. 

    All good ideas, and nothing controversial. Selection of any of these measures would largely come down to policy choice. Obviously these measures are specifically to do with the practice of tax administration, and do not affect the actual tax liability. Other more substantial measures, for example, enhanced loss reliefs, are indeed a matter for the legislature. Even so, the above suggestions would offer a measure of relief in these beleaguered times. 

  • Coronavirus and fiscal relief measures – what works best for smaller countries?

    B.M.R. On


    Interesting article from the UK Institute for Fiscal Studies, discussing the most appropriate fiscal support measures for low and middle-income countries.

    The gist of the article is that, at the moment, the focus should be on targeted support, rather than on broad-based stimulus measures. 

    For example, broad-based tax cuts might miss the mark, as most businesses would, in any case, be facing low profitability. Also, given the large size of the informal sector in such countries, such a fiscal measure would end up wide of the mark. Many businesses, being outside the formal tax net, would not benefit from the measure. 

    The article highlights certain targeted measures that could work, depending on the circumstances of the country. Broadly, these would be measures that bolster the cash flow of individuals and businesses in the sectors hard hit by the coronavirus situation. These include:

    (i) deferral of tax payments;

    (ii) expediting of tax refunds;

    (iii) reduction of VAT and withholding tax rates; and

    (iv) introducing more generous loss-carry forward rules. 

    The article is also in favour of measures that reduce the cost of labour to businesses. These could include, for example, temporary exemption from payroll related taxes and employer-related social security contributions. Also worth considering are temporary wage subsidies, perhaps along the lines adopted by the United Kingdom in response to the coronavirus pandemic. The United Kingdom is, of course, in a totally different position from a low or middle-income country. Affordability remains a key consideration. 

    The article looks favourably upon several other possible measures. These include:

    (i) the temporary waiver of taxes that act as barriers to tax transfers and remittances (e.g. taxes on electronic money transfers);

    (ii) deferral of previously planned revenue-raising measures; and

    (iii) targeted support via local government and social protection systems.

    This is not to rule out entirely the possibility (or desirability) of broad-based stimulus measures. The point being made is that those measures may eventually be required, but it is not yet the time for that. The focus for the moment should be on support. That is the need of the present hour. Stimulus measures could follow thereafter.