Direct Digital Services Taxes in Africa and the Canons of Taxation

The unprecedented expansion of the digital economy has increased the intricacy of mobilising tax revenues from both domestic and international transactions. Tax evasion and avoidance are perpetuated by the invisible nature of digital transactions. To minimise the untapped revenues, countries all over the world are mapping policy strategies on how to collect revenue from this sector. African countries are not an exception. They have constructed digital tax policies to levy both direct and indirect taxes on digital transactions. This paper focuses on direct digital service taxes (DSTs). Direct digital service taxes have been an issue of debate among governments, policy makers, academics, tax bodies, and development organisations. Disagreements coalesce around their structure, their adherence to the canons of taxation, opportunities, and challenges as well as consequences of implementing them. Through a literature review, this paper assesses the legislative structure and administration of digital service taxes in relation to the canons of taxation. The findings of the review were conflicting. While certain aspects, motives, and possible outcomes of the taxes upheld the principles of taxation, some of these were conflicting with the principles. This could possibly be linked to variations in the economic, political, and social contexts in African countries and between developed and developing countries. The study recommends that while digital service taxes are an irrefutable necessity to tap tax revenues from the digital economy, African countries should ensure that equity, neutrality, economy, and efficiency among other principles are considered and balanced with the fundamental roles of tax policy.

COVID-19 and deferred tax reversals

Purpose>This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand Government’s coronavirus (COVID-19) tax support package. The COVID-19 pandemic and the tax relief created an accounting response to map the environment to accounting reports, reversing previously recognized deferred tax liabilities and increasing reported income as a result.Design/methodology/approach>This is an exploratory and descriptive study to understand the accounting response and impact on companies’ financial statements following a COVID-19 tax relief to support businesses in a dire financial situation as the effects of COVID-19 took hold.Findings>First, the accounting response provided the appropriate mapping from the COVID-19 environment to accounting reports. Second, the financial statement impacts are material, especially for companies with extensive holdings of buildings that are held for use. Third, while the accounting relief was immediate, the economic (cash flow) support does not occur until a year later.Research limitations/implications>The financial statement impacts are based on a subset of NZX 50 companies with the available information at the time of writing. However, they do not compromise the external validity of the findings because the tax depreciation relief applies to other listed companies, unlisted public and private companies, trust, partnerships and individuals.Practical implications>The New Zealand Government could have been more helpful to businesses by allowing an immediate depreciation deduction in the 2020 year as opposed to implementing it from 2021. Further, it could have legislated a backlog depreciation deduction from 2010 – when the depreciation on buildings was disallowed – to 2020.Originality/value>This paper documents the evolution of the accounting for deferred taxes when the New Zealand Government withdrew the tax depreciation in 2010, how NZ IAS 12 evolved as a result of that event and now the reversal effect with the reinstatement of the tax depreciation during COVID-19. The paper also blends in the accounting responses and considers whether they are opportunistic or efficient.