Tech giants, Google, Facebook and Microsoft use unfair global tax rules to avoid paying up to Sh280 billion in taxes to developing countries, a report from ActionAid International, has revealed.
The charity firm’s new research analyzed Facebook, Google and Microsoft and determined the amount in taxes their market activities in 20 countries, including Kenya, could generate. The Sh280 billion in foregone taxes is calculated from the tech companies’ global profits based on the number of users and adjusted to the particular country’s Gross Domestic Capital (GDP) per capita.
“India, Indonesia, Brazil, Nigeria and Bangladesh are the markets studied with the highest tax gaps from the three companies,” said the report.
“Apportioning of profits to each country is based on the estimated number of users in each country and adjusted for per capita GDP (current US dollars) to calculate the ‘value’ of users to each company in different countries, as a proxy for their economic activity,” explains the report.
The report comes amid efforts by the government to tax digital transactions from 2021. In July this year, the National Treasury, through the Finance Bill 2020, introduced the Digital services tax, which will be payable on income generated through a digital marketplace. The tax amount has been set at 1.5 percent and is due during the payment of the particular service.
“VAT shall be charged on taxable services supplied in Kenya through the digital market place,” explains the regulations in part. “Taxable supplies made through a digital market place shall include electronic services and downloadable mobile apps, e-books and movies.”
The digital tax proposal has however come under scrutiny after the US set tough conditions for Kenya in its negotiations for free trade deal. The US said that Kenya should discourage actions that prejudice or discourage business between them and a third party Israel.
“Kenya must not tax digital products like e-books or music, and Nairobi must include no provisions that require US firms operating to store data locally”an excerpt from a record of the negotiations said.
ActionAid further said that the tech giants rake in millions in profits from developing countries but contribute little or nothing towards public services.
“The $2.8 billion tax gap is just the tip of the iceberg – this research covers only three tech giants. But alone, the money that Facebook, Alphabet and Microsoft would be paying under fairer tax rules could transform public services for millions of people”. David Archer, global taxation spokesperson for ActionAid International, said.