Working Paper

181

Are Trade Rules Undermining Taxation of the Digital Economy in Africa?

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Are Trade Rules Undermining Taxation of the Digital Economy in Africa?

African countries are currently considering provisions in the AfCFTA and at the WTO to liberalise digital trade. As they face mounting fiscal pressures, it is imperative that they beware the implications of digital trade provisions for their ability to tax their digital economy. In this paper, we develop a comprehensive framework for analysing the impact of trade rules on tax regimes in the digital economy, with a focus on Kenya, Rwanda, and South Africa. We explore how trade rules ostensibly shape tax policies and their implications for revenue generation. By examining rules regulating trade in services and the imposition of customs duties on electronic transmissions, we identify how these rules may directly impact tax policies and limit revenue generation possibilities. Moreover, digital trade rules, such as those related to data flows, localisation, and source code sharing, have the capacity to produce both indirect and administrative effects on tax measures. These rules can alter tax structures, taxation rights, data collection, and the capacity to monitor and implement tax measures. Our findings shed light on the complex interplay between trade rules and tax measures, highlighting potential challenges and opportunities for revenue generation from the digital economy in African countries.

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Banga, K. and Beyleveld, A. (2024) Are Trade Rules Undermining Taxation of the Digital Economy in Africa? ICTD Working Paper 181, Brighton: Institute of Development Studies, DOI: 10.19088/ICTD.2024.007

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