Digital expertise is on the coronary heart of at the moment’s enterprise world and driving financial actions. The digital economic system includes e-commerce (on-line transactions) and (digital) contents within the type of music and media streaming providers.
By extension, a enterprise mannequin that includes a number of digital components akin to digital communication, digital automation, digital distribution or digital cost varieties an integral a part of the digital economic system. Certainly, many companies have adopted and built-in one digital ingredient or one other into their operations.
Digital Financial system Tax
A tax that can be referred to as a Digital Companies Tax (DST) is a tax on the income streams generated by digital firms. The main focus of this tax is on the worth created by the digital platforms, providers and enterprise fashions. On this occasion, it targets particular digital platforms, that are Google, Apple, Fb and Amazon, and thus termed because the “GAFA tax”.
Certainly, a Digital Financial system Tax (DET) goals at guaranteeing that the digital economic system contributes to the tax base of a rustic the place they function. That stated, a digital tax captures value-creation by taxing the financial worth generated by digital actions akin to information transmission, promoting and platform charges.
It’s revenue-based and taxes a share of digital revenues. To make sure they apply solely to the most important digital companies, a Digital Companies Tax (DST) will need to have a minimal threshold for international and home revenues that have to be met earlier than companies are topic to taxation.
For tax functions, it is very important distinguish between the usage of digital expertise to boost current enterprise capabilities (communication, cash switch) and the core function of digital expertise within the introduction of tax-disruptive realities.
With regard to current enterprise capabilities, digital expertise has been used to enhance communication and cash switch that had been beforehand fulfilled by way of conventional channels (for communication, person-to-person, telephony, radio, tv, postal mail, newspapers, cash orders, traveler’s cheques, magnetic stripe financial institution and non-bank bank cards or financial institution cheques).
Tax-disruptive realities embody intangible content material, on-line platforms, on-line supply, zero marginal price provide that didn’t exist beforehand and should render tax norms inexplicable.
Tax-disruptive digital components akin to digital content material, digital distribution and digital automation are solely current in digital enterprise fashions since they’re interconnected and function collectively. The crux of the matter is that digital content material can solely be delivered on-line by way of digital distribution, and the provision of and entry to digital content material is generally digitally automated. Furthermore, digital distribution makes use of the web as a supply channel, which additionally operates as a component of digital communication.
Coverage Concerns
The digital economic system has dramatically reworked the way in which companies function by creating new alternatives for development, innovation and job creation. It has additionally raised necessary coverage points on tax transactions and companies. Historically, tax rules have knowledgeable and guided the event of tax programs. As such, some tax rules are meant primarily to handle tax coverage concerns (fairness, profit or neutrality) whereas others goal to facilitate tax administration (certainty, simplicity or enforceability). Consequently, the previous have better significance than the latter, since, for instance, an unfair tax won’t ever be admissible based mostly on its enforceability or its simplicity.
It has change into recognized that not all tax rules have the identical influence on the taxation of the digital economic system. For instance, vertical fairness is generally utilized to non-public taxation, whereas the digital economic system is business-centered, the place progressive taxation is absent.
Moreover, horizontal fairness supplies that two taxpayers with equal capability to pay ought to pay the identical quantity of tax. It additionally implies that two taxpayers with comparable financial circumstances ought to obtain an equal tax therapy. This additionally brings to the fore the precept of equity. Certainly, equity requires treating equally these which are equal and otherwise these which are totally different. In that regard, step one is to find out whether or not two taxpayers are equal or totally different for tax functions.
Consequently, earlier than we measure their capability to pay, it’s essential to assess the financial circumstances of the taxpayers and their respective enterprise fashions. Except that is achieved, there’s a danger that we’d attempt to apply the horizontal fairness precept to taxpayers that don’t share comparable financial circumstances and that, subsequently, are usually not comparable from a tax perspective.
Challenges of Taxing the Digital Financial system
It’s worthy to notice that Digital Companies Taxes (DSTs) have come beneath scrutiny since their conception. Companies have additionally criticized Digital Companies Tax (DSTs) for resulting in a number of taxation. Taxes utilized to gross revenues like Digital Companies Tax (DSTs) don’t enable for price deductions. The identical enter could also be taxed a number of instances if even an enterprise made working purchases inside a rustic. Digital components are thought-about tax-disruptive after they improve the complexity of conventional tax administration and tax enforcement practices.
For some components (communication, cost), digitalization has improved their functionalities (community bandwidth capability, information switch, information compression, id verification, information safety, customization of shopper expertise). For different components (content material, distribution, automation), the unfold of digital expertise has enabled new financial realities which have altered the normal enterprise atmosphere and prompted the rise of tax-disruptive digital enterprise fashions.
Apart from that, the usage of monetary sector-based digital cost strategies (digital funds switch programs, like credit score and debit card funds, automated teller machine (ATM) transfers, wire transfers, stored-value playing cards, on-line invoice funds) barely disrupts conventional enterprise and tax practices, since comparable strategies of transferring cash have been utilized in conventional transactions for many years.
In actual fact, monetary sector-based cash switch funds present tax authorities with better management and monitoring mechanisms. Because of this, digital cost strategies based mostly on digital funds switch needn’t be thought-about a tax-disruptive digital ingredient.
Equally, by itself, the communication channel has restricted influence on tax enforcement since digital communication doesn’t differ considerably from the established conventional telecommunication channels akin to telephony, postal mail, radio, newspapers or tv.
Assuming that the opposite components to the financial transaction are usually not digital, utilizing the web to speak with clients to rearrange a bodily transaction doesn’t pose main tax challenges- the tangible nature of the content material of the transaction and the channel of distribution permits efficient management and taxation by the tax authorities.
In distinction, utilizing the web to draw customers and to affect clients raises some tax considerations as a result of the web capabilities as a digital channel for delivering internet marketing content material. In that sense, the web isn’t just a digital channel for speaking with clients. Nonetheless, the web as a digital communication channel will not be thought-about as a tax-disruptive digital ingredient. The digital automation of enterprise processes has enabled digital enterprise fashions to achieve scale with out mass at zero marginal price.
The bodily workforce (human employees) have been changed by means of digital innovation to streamline enterprise processes and keep a aggressive edge. Digital automation intervenes within the provide of digital content material (media-streaming platforms) and is barely current in tax-disruptive digital enterprise fashions. Furthermore, it at all times requires the web as a communication channel. So, digital automation is taken into account as a tax-disruptive digital ingredient.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years {of professional} and business expertise in Monetary Companies Sector and Administration Consultancy. He’s the Managing Companion of J.S Morlu (Ghana) a world consulting agency offering Accounting, Tax, Auditing, IT Options and Enterprise Advisory Companies to each non-public companies and authorities.
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