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EAC seeks joint plan to tax digital economy

By Macharia Kamau | November 13th 2020

Authorities from the East African region are developing a joint strategy to tax international firms selling their products locally but through the digital space.

Commissioners general of the region’s tax collection agencies met on Wednesday and agreed to work together to levy the digital economy.

The move is expected to enable East African Community (EAC) countries not only grow tax revenues from the digital marketplace but also keep up with the times, with many businesses now ditching the brick and mortar models to take up online platforms.

At the meeting, the tax chiefs agreed to develop a joint strategy to address the taxation of the digital economy on issues to do with the legal framework in terms of definitions, identification of players and the legal mechanisms.

“Other administrative issues to be addressed include leveraging on technology and building technical skill,” they said in a joint communique.

Authorities have had difficulties taxing companies offering products online that do not have physical offices in their countries.

Kenya Revenue Authority (KRA) already plans to start collecting a 1.5 per cent digital services tax in January.

The taxmen also agreed on doing lifestyle audits on employees of the revenue authorities within East Africa.

“The commissioners general directed that in order to improve the integrity of staff in the revenue authorities, lifestyle audits should be carried out across the region,” said KRA Commissioner General Githii Mburu, who read the joint communique.

“The reason why this is being undertaken by EAC is to underscore the importance of integrity in respect to officers working with revenue authorities in the region. Lifestyle audits are effective deterrents of unethical practices.”

He said KRA had already commenced undertaking audits on employees.

“Lifestyle audits are already operational in Kenya. At KRA we have an operational framework of identifying, undertaking and dealing with the outcomes, including sharing information with the Ethics and Anti-Corruption Commission and the Assets Recovery Agency,” said Mburu.

He added that the two agencies are already dealing with a number of cases forwarded by KRA.

Other East African countries are at various stages of implementing the lifestyle audits on their staff, with Uganda expecting to start undertaking the audits later this year.

KRA hosted the meeting, the first since Covid-19 hit the region.

Other than the revenue authorities, the virtual meeting was also attended by representatives from EAC Secretariat as well as the African Tax Administrative Forum.

Mburu noted that the pandemic has had a devastating impact on tax collection across EAC as economies slowed down, while in some instances governments tried to give their citizens a lifeline through tax cuts. 

“All the revenue authorities reported declining revenue performance during the period of March to September 2020 due to the Covid-19 pandemic with the greatest decline being registered in May,” he said.

“In the quarter of July to September 2020, the revenue growth in the region ranged from -44.9 per cent to 2.1 per cent. This was unprecedented bearing in mind that the revenues have on average been growing at double digits.”

KRA has also put in place modalities to start taxing companies offering services such as streaming content online and taxi-hailing.

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