Tax reform enthusiast advocates widening of tax net to capture digital businesses

Zambia should introduce digital service tax as a way of taxing the digital technologies which more often tend to escape taxes.

This has been suggested by the Zambia Tax Platform -Private Sector Enhancement Specialist, Ellen Makinishi.

Makinish regretted that most transactions involving digital content tend to escape taxes.

She said with the turnover tax regime extended to digital businesses, the Zambia Revenue Authority (ZRA) first needed to register digital based business for tax purposes and ensure that each one of them submitted their annual returns.

Makinish stressed that the digital economy made it feasible for the imposition of a form of digital service taxes on larger digital companies.

This tax, she explained, was imperative in accounting for digital services that traditional tax rules failed to account for.

“Currently, Zambia has no digital service tax putting it behind countries such as Zimbabwe, Ghana, and Nigeria. Digital businesses can further be used as collection agents for Value Added Tax (VAT) on goods and services sold to consumers,” Makinishi said in an interview on Sunday.

She stated that there was often a cost in the form of uncollected tax revenues from digital technologies which could have been collected if the businesses had been conducted through a traditional bricks-and-mortar establishment.

For instance, she said, with an increase in the number of online taxi services in Zambia there had been a significant reduction in the number of cars being registered for public transport purposes, translating into a significant loss of revenue.

Makinish also said the increase in online advertisements had seen a reduction in advertisements on TV and radio stations.

“TV stations and radio ordinarily pay their VAT and Corporate Income Taxes to ZRA. However, many online platforms do not remit these taxes.

“The major challenge of taxing the digital economy lies in the identification of digital transactions,” Makinish said.

She said unlike physical transactions involving the exchange of physical goods that may be paid either using digital payments or traditional payment forms, digital transactions involved digital content which was not only hard to identify but also difficult to quantify.

She indicated that as Zambia progressed with digitisation, the effect this will have on tax revenues would depend on measures the ZRA took to improve the monitoring of digital transactions.

In addition, she said, tax collection could be enhanced using digital technologies as the economy digitalised.

Meanwhile, Makinish said despite some of the outlined pitfalls, the digital economy was an opportunity for Zambia to improve tax revenue collection and enhance domestic resource mobilisation.

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