As streaming, online advertising, app stores, ride-hailing and cloud services grow, African governments want a share of the revenue earned by digital companies, many of which are based abroad. They use several different tools to tax the digital economy. This guide explains them in plain language.
Tax rules change often. This is general information, not tax advice. Check your revenue authority’s current guidance.
Why digital taxation is difficult
Traditional tax rules tax profits where a company has a physical presence, such as an office or factory. Digital companies can earn large revenues in a country with no physical presence there, so governments have been updating their rules.
1. VAT on foreign digital services
The most widespread approach is requiring foreign providers of digital services to charge value added tax (VAT) on sales to local consumers. This applies to services such as streaming subscriptions, app purchases, online advertising, software and cloud services. Many African countries, including South Africa, Kenya, Nigeria, Ghana, Egypt and others, have introduced such rules. As a consumer, you may see VAT added to subscriptions.
2. Digital services taxes (DST)
A digital services tax is a tax on the gross revenue a company earns from certain digital services in a country, regardless of profit. Kenya introduced a DST in 2021 and later replaced it with a significant economic presence tax. Other countries have introduced similar measures or considered them.
3. Significant economic presence (SEP) rules
SEP rules treat a foreign company as taxable in a country if it has substantial digital engagement there, for example revenue above a threshold or a large user base, even without an office. Nigeria introduced SEP rules for non-resident companies providing digital services, and Kenya adopted a significant economic presence tax.
4. Levies on mobile money and telecoms
Some countries tax mobile money transfers, airtime, data or the use of social media. These taxes can raise significant revenue but have sometimes reduced usage, particularly among low-income users, leading several governments to revise or cut them.
5. The global tax deal
Through the OECD/G20 Inclusive Framework, many countries have negotiated a two-pillar global tax reform: Pillar One aims to reallocate some taxing rights over the largest multinationals to market countries, and Pillar Two sets a global minimum corporate tax rate of 15 percent. African countries have participated with mixed views, and some have argued the proposals do not give developing countries a fair share. Discussions at the United Nations on international tax cooperation have also gained momentum.
What this means for you
Consumers
- Digital subscriptions may cost more when VAT or DST is passed on
- Mobile money and data taxes can raise the cost of everyday transactions
Local digital businesses
- You may need to register for VAT and charge it on digital sales
- Some digital taxes apply to local and foreign companies alike
- Factor taxes into pricing, especially for subscriptions
Foreign platforms and exporters
- Check registration thresholds and filing requirements in each market
- Simplified registration regimes may be available for non-resident suppliers
Key questions to ask your tax adviser
- Do we need to register for VAT on digital services in each country we sell to?
- Are we subject to a DST or SEP rules?
- How are payments from foreign platforms taxed in our country?
- Are there double tax agreements that apply?
See how tax fits into the wider landscape in our guide to tech policy in Africa. Running a startup? Read How to Start a Tech Startup in Africa.
