Multiple taxes squeeze digital firms as profits take a beating


A delivery man drives a transporter with an advertisement for Nigeria's e-commerce site Jumia in the Plateau district of Abidjan, Ivory Coast. FILE PHOTO | ISSOUF SANOGO | AFP

Digital businesses including e-commerce platforms are coming under increased taxes, piling pressure on their profits as governments go for a share of the revenues.

Businesses such as Jumia and Multichoice, with a presence in multiple countries, say various new taxes have been coming up, with others still on the cards increasing their tax burden.

Kenya is among the countries that have been going for digital revenues by enacting different regulations including the digital services tax.

Players say the digital services tax, coupled with others on over-the-top services, mobile money transfers and other e-commerce and mobile services may slow down their businesses.

“Tax authorities in various countries are currently reviewing the appropriate treatment of e-commerce activities. Recently, several countries in Africa have imposed new, or increased existing, taxes on e-commerce and mobile services,” says Jumia, an e-commerce firm with a presence in Kenya.

Jumia cites Kenya, which has been taxing mobile money transfers, and also in 2021 introduced the digital services tax at a rate of 1.5 percent of gross transaction value, as among the jurisdictions where the tax burden is rising.

Kenya charges digital service tax on income derived or accrued in the country from services offered via a digital marketplace.

Kenya Revenue Authority collected Sh5.33 billion from digital services tax and value-added tax on digital market supply during the financial year ended June 2023, being a 208 percent jump from the previous period.

The tax head is deemed to have a large headroom for growth given the huge value of e-commerce transactions in the country.

Pay television service provider Multichoice, with operations in different countries including Kenya and Nigeria also says new taxes are exposing it to the risk of double taxation.

“Some countries are introducing new taxes such as the digital services tax in Kenya, which requires different laws and compliance burdens and potentially double taxation,” says Multichoice in the latest annual report.

“There are also numerous local and international tax policy changes being introduced, which further increase the risk of double taxation.”

Uganda and Ivory Coast imposed mobile money transfer tax. Jumia says it sees a possibility of other African countries rolling out new taxes on e-commerce and mobile services, raising the current tax rate.

Uganda also recently introduced a new tax on foreign digital service providers such as Facebook and Netflix.

Other services targeted under this tax head include e-books and movie sales, dating sites, music, and games, and subscription-based media including news, magazines and digital content.

Governments are increasingly targeting technology-based businesses which initially operated with little to no taxation compared to other enterprises.

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