Governments are pushing back to tax online businesses but how effective will they be able to crack the elusive market ?

Governments are pushing back to tax online businesses but how effective will they be able to crack the elusive market.

For a long time, the government would easily locate physical businesses or license multinationals doing businesses in their respective countries netting taxes.

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But the rules have changed with the ease of moving money and seamless logistics, businesses are able to buy and sell across jurisdictions without paying the taxman.

The latest tiff between Kenyan Government and online sports betting firms for taxes is just a small part of a larger battle being waged globally.

The French Senate has approved plan to apply a 3 percent charge on turnover of digital companies with revenues of more than Sh87 billion (€750m) globally and Sh2.9 billion (€25m) in France.

The UK also published today its own draft legislation for a 2 percent digital sales tax, first flagged last October, from April 2020 if no international agreement on the issue is reached before then.

The corporate tax system is increasingly unfit for purpose in the digital era. The fact that companies can structure themselves so that they pay much of their tax in low-tax jurisdictions, regardless of where sales take place, is a particular problem.

Kenyans Finance Cabinet Secretary Henry Rotich in his 2019 budget has proposed amendments to the income tax law to tax income made from digital channels.

Nairobi county is also planning a separate tax for online businesses as Governor Mike Sonko seeks additional income to run the Kenyan Capital.

Independent Commission for the Reform of International Corporate Taxation, Commissioner Wayne Swan said while these interim tax measures are welcome there needs to be a standard global way of taxing companies where they make their money and not allowing companies to ship profits abroad.

“The OECD Inclusive Framework is finally contemplating taxing multinationals as single businesses, apportioning profits between countries through the formula and a global minimum tax, all policies ICRICT has been arguing for.

Such a move beyond the arm’s length principle by relocating taxing rights, ensuring that countries where the actual economic activity occurs get their fair share and making sure that companies regardless of where they are physically located pay a minimum effective rate of tax globally will deliver a sustainable system fit for the future” he said.

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