Apparently it is emerging that Zimbabwe revenue authorities are having a tough time catching up to the e-commerce trend. This is not just happening here but all across the African continent in general. There is absolutely no doubt as to how e-commerce is sweeping all over the world. There are various reasons for this but one of them has to do with the ease of starting an e-commerce business. Not only that, but it also offers great convenience to the customer who can buy from the comfort of anywhere. E-commerce is the most rapidly growing industry in the retail domain with global sales projected to surpass US$4 trillion next year. So e-commerce is not going anywhere – it is here to stay.
Value-Added Tax (VAT) Revenue Earnings Declining
It has now become a growing trend that most African governments are worried about VAT collections going down due to e-commerce. Zimbabwe is a case in point and the major reason why this is happening is that most laws are still silent or blurry on the e-commerce aspects. The recently announced 2020 budget proposed a VAT cut from 15% to 14.5% on taxable items.
International Conference On Tax In Africa
The aforementioned matter was topical during the latest edition of the International Conference On Tax in Africa. It was held in Uganda’s capital, Kampala. Various delegates spanning from academics to policymakers and tax experts converged to deliberate on the matter. The crux was to map out ways in which they can embrace technological advancements and innovations in such a way that feeds into the tax bracket. The matter in question was brought to the fore by the Commissioner-General of the Zimbabwe Revenue Authority (ZIMRA), Ms Faith Mazani.
She along with her team was in attendance and she made a presentation that sparked our subject matter. She highlighted that is has been hard locally to tax transactions involving virtual or immaterial products and services. It is apparent that through such there is a lot of revenue that is being lost because of the lack of efficient pieces of tax regulations. Some of the ways in which this is happening are through online shops, making payments digitally and various startups whose revenue streams are not included in the official tax brackets. Interestingly, other African nations in attendance concurred by pointing out that they are also grappling with the same predicament.
Resolutions From The Conference
It was agreed that the lack of regulations regarding e-commerce is compromising the efficacy of the VAT initiative. History shows that VAT (when it was introduced), led to a surge in revenue earnings. That trend, however, is being reversed due to the fact that more and more trading activity is now being done digitally. What makes this an issue is a fact that the proliferation of e-commerce which is rife now was not envisaged when VAT was enacted. On the flip side, e-commerce offers a platform on much better ways of monitoring and evaluation for revenue authorities. Remember that e-commerce entails a lot of data so that brings about aspects like big data and data analytics. All in all, the tax administrators agreed that it would be best to take advantage of that whilst sprucing up the existing tax laws to measure up to the e-commerce trend.
It was actually resolved that it must be easy for African nations to put in place VAT on digital trading (even if the suppliers are foreign to a nation in question). Due to the leveraging of digital platforms and approaches, it should be as easy as expected. South Africa is one example of an African country already getting VAT on digital trading. Anyways, it will not be a walk in the park; people complying with such VAT requirements will definitely be met with evasions. Thus it was pointed out that it is paramount for nations to acquire top-tier tech in order to effectively monitor digital transactions. It was also encouraged that consultations and engagements with pertinent stakeholders be made. Particularly important to note is the private sector which despite its whirlwind reputation sometimes needs to be closely included in policy formulation and other related aspects.
You are probably wondering why VAT is such a big deal right? Well, the African Tax Outlook report of 2019 shows that VAT is the biggest chunk of revenue earnings. Not only is it at the apex but it also considered as the most stable form of tax. Trailing behind are personal income tax and corporate income tax. So the challenge is upon our local tax authorities to figure how best they can implement the resolutions from the conference we discussed earlier. Like earlier on mentioned, the involvement of the private sector must be highly prioritized. Considering that e-commerce is still infantile in Zimbabwe I would also think it is wise to strike a healthy balance. Any attempts at taxing digital trading must not stifle the growth of e-commerce especially considering that it is still developing locally.