Last week the presidential commission on the Fourth Industrial Revolution (4IR) — through the department of communications & digital technologies — published a report in the Government Gazette. Included in this 200-plus-page document is a proposal for a digital tax on international companies accessing local consumers or users.
This echoes the parliamentary budget office’s new tax brief from June 2020, which included an examination of the digital economy and possible tax policy, and is very much aligned with global views (more below).
Unfortunately for the 4IR commission, this information came to everyone’s attention momentarily after the SABC floated the idea of requiring providers such as DStv and Netflix to collect television licence fees on behalf of the beleaguered broadcaster, and that someone accessing Amazon Prime content on their smartphone, for example (no TV required), be subject to the licence fees.
Deputy communications minister Pinky Kekana told parliament’s portfolio committee on communications on October 20 that the definition of the licences was outdated and needed to be changed to reflect new technology, including streaming content. And it probably does, but that’s besides the point. If I thought the organisation was well run I’d be the first to hand over an annual licence fee (to support local content and news), but nothing feeds a South African’s maverick tendencies like a poorly run state-owned enterprise demanding more money.
Predictably, SA responded with memes and outrage. Someone called it “like needing a fishing licence to eat at Ocean Basket”. And some other comedic bright minds suggested that soon the SABC will be demanding money from those watching videos shared on WhatsApp or anyone munching a TV chocolate bar. We might be ornery around here, but our gallows humour is top tier.
However, unlike the much-maligned SABC suggestion, the notion of a digital tax on global platforms is not ludicrous, and is gaining ground around the world. What the 4IR report says specifically is: “It is a priority for this commission to recommend that the RSA participate actively in international efforts to ensure that technology companies pay a fair share of tax in the countries in which they operate.”
It goes on to say this is a key revenue stream that would allow the state to invest in the 4IR infrastructure and digital services they believe necessary. And it — rightly in my view — calls out the technology companies that are adroitly ducking and dodging tax through tactics such as “transfer pricing and by selling IP [intellectual property] to tax havens where the profits are allowed to accumulate, with little or no tax accruing in the countries where the companies actually operate”.
“This avoidance is increasing the gross inequality within and between nations which has to date characterised the 4IR.”
The Group of Twenty (G20) finance ministers tasked the Organisation for Economic Co-operation and Development (OECD) with finding a plan that would see multinationals provide a slice of profit pie to the countries in which their users and consumers live (profit reallocation rules). Traditionally, as you know, both personal and company tax has been heavily premised on jurisdiction, but like the SABC’s definitions, that too needs updating.
The second pillar of this plan — all of which is very much still in discussion — is establishing something like a global minimum tax rate, so these wily big tech companies can’t escape to tax havens. If and when there is agreement, there will be wide-scale changes to make, which the countries involved would have to enact themselves. So don’t hold your breath for speedy implementation.
Unfortunately, Covid-19 and some self-focused thinking are proving profoundly disruptive to progress. The OECD provided an update on these talks earlier in October, pushing back its own deadline (once again) to 2021. Among the factors it cited in this regard is that some — cough, the US, cough — want profit reallocation rules to be optional, which arguably defeats the purpose of the plan.
And furthermore, it says, it’s been desperately difficult to manage these talks and negotiation efforts via virtual meetings. Yes, well, a video call with leaders from 137 countries debating controversial tax proposals does seem like a recipe for “death by Zoom meeting”. On that point alone, then, we have some much-needed global agreement.
• Thompson Davy, a freelance journalist, is an impactAFRICA fellow and WanaData member.
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