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Cross-border tax shifts expected beyond 2020

Governments are likely to seek out new ‘pockets’ to tax and may adopt more protectionist mentalities.
The digital economy is an obvious target. Image: Shutterstock

The history of international taxation shows that tax tends to shift substantially after a major world event. The two world wars have been the most important catalysts for the development of international taxation, a recent report by Graphene Economics on cross-border tax notes.

In the report Keith Engel, CEO of the South African Institute of Tax Professionals (Sait), says that given the impact of Covid-19 on world economies, there is likely to be another shift in international taxation over the coming months and years.

“If we look back at the 2008 global financial crisis, it was only in 2013 that the OECD [Organisation for Economic Cooperation and Development] started formally working to address the significant issues of Beps [base erosion and profit shifting], so there was quite a lag. What is perhaps different now is that the OECD was already working on various policies prior to 2020,” says Engel.

He anticipates greater indebtedness by governments, with revenue authorities having to look for new “pockets” they can tax and potentially adopting more protectionist mentalities.

Disruption

The report refers to the disruption of global supply chains and an increased focus on digital services taxes.

Globally, many countries have begun to look at localising supply chains and the OECD has had a keen eye on taxing the digital economy.

Read: No global digital tax by end-2020 would mean chaos – France

Bonface Fundafunda, an independent consultant in health planning and policy, says this localisation of supply chains is a form of protectionism that will in turn affect tariffs, as well as value-added tax and general sales tax as policy around “rules of origin” adapt.

The report also quotes Mzukisi Qobo, member of the Presidential Economic Advisory Council and head of the Wits School of Governance, as saying that the rationale behind these policy shifts (towards protectionism) will be explained as helping to build local supply chains and industries.

He says governments may argue for “infant industry protection” such as the manufacturing of personal protective equipment (PPE) and medical supplies.

“I think governments need to think more strategically and carefully about the kind of industries they want to promote as new sources of growth, such as your green industry, and digital industry infrastructure linking to socio-economic development,” he says.

Pro-growth incentives

“They need to overlay this with tax and other incentives to promote growth, because relying on the old sectors is not going to help economies recover from the ravages of Covid-19,” says Qobo.

The report notes that digitisation has been a “buzzword” for some time now. The pandemic has simply accelerated it. The report shows a comparison done by YCharts to show the explosion of Zoom’s daily meeting participants from around 10 million in December 2019 to 300 million in April this year.

Its market capitalisation of $48.8 billion is bigger than the combined market cap of $46.2 billion of the largest seven airlines globally (Southwest, Delta, United, IAG, Lufthansa, American Airlines and Air France KLM group).

Read: Cryptocurrency traders should prepare for stricter tax surveillance

The OECD has been focusing on ways to tax the digital economy for the past few years already. It has been considering the implementation of an additional taxing right on companies with a digital footprint in other countries.

The OECD has tried to limit the proliferation of unilateral measures by looking for a unified approach. However, certain countries such as France have gone ahead with the introduction of a digital services tax, while others have taken a wait-and-see approach.

Graphene Economics expects that this tax will be a “hot topic” among tax policy leaders and politicians. The taxing rights over technology-related income streams will certainly have an impact on international trade deals, it says.

Read: Export taxes becoming more prevalent globally

The African Tax Administration Forum (Ataf) has already published a paper on the suggested approach to drafting digital services tax legislation for African countries.

The paper provides a draft legislation template for the introduction of a digital services tax, with a suggested rate of between 1% and 3%.

The revenue on which this tax can be levied includes income arising from online advertising services, data services, and revenue derived from users in the taxing country on the provision of online marketplace or intermediation platform services.

Duane Newman, MD at Cova Advisory and chair of Sait incentive working committee, says in the long term the priority for governments will be to stimulate economies. In the short term, pro-growth interventions such as tax incentives will be introduced.

“A lot of countries will be looking to make their policies more pro-growth, but also more inclusive … ”

He warns that this disparity may result in emerging economies increasing protectionist measures, including customs duties.

He notes that developed countries collect 1% of their total tax collection from trade, while developing countries collect on average 10% of their total revenue collections from trade.

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What he is really saying (masking) is that S.A. IS BROKE!! They need more revenue streams and will take it from those who are left with a job. Socialism at its best, Name one socialist country that works??????????

…..ooh hell ….that comment is going to prickle the “Woke Left” to China’s defense (ignoring human right abuses)

Zokey: it is probably hard to define which countries are “socialist” and “capitalist”.

Most countries would not recognize capitalism if it bit them on their noses. Witness the bailouts in business sphere (GoldmanSachs, BoA, GM, etc should be footnotes for example). Governments not only bail out, they distort capitalism with both subsidies and punitive taxes. There would be virtually no farmer in the EU without theIr subsidies and import barriers. Europe should be eating better and cheaper food made in SA, Australia, Argentina, etc

On an individual level, social welfare payments distort naked capitalism.

To your question : Denmark, Sweden, Norway would probably be classified Socialist and they are very successful and have very happy citizens.

Johan, I agree. The political situation in most countries is sliding along the slippery slope towards socialism. If we want to discuss the difference between economic systems, we should first define the terms. Capitalism simply is the private ownership of the means of production, while socialism is the shared, or public ownership of the means of production.

Capitalism depends on the enforcement of private property rights, which provide incentives for investment in, and productive use of, productive capital. Socialism, collectivism or communalism incentivises the opposite behaviour patterns among the population. Socialist systems incentivise the most unscrupulous members of that community to exploit the shared resource at the maximum rate. This phenomenon is known as “The Tragedy of the Commons”.

The Communist Party in China implements a capitalist market economy and enforces the private ownership of the means of production. This Communist Party is communist in name only. South Africa is supposed to be what is known as a mixed economy. Individuals have property rights, and the means of production are in private hands. The state plays an increasing role in the economy and the SOEs represent the pubic ownership of the means of production. In typical collectivist fashion, we experience the plundering of the shared resources at SOEs. The public sector in South Africa is crowding out the private sector. The public sector consumes resources while the private sector produces it. This is a recipe for bankruptcy.

The Scandinavian countries have vast social projects that are funded by the private ownership of the means of production. They are strongly capitalist. They have even privatised their SOEs. The Scandinavian economies are more capitalist than the South African economy. That is why we cannot afford social projects, while they can.

The last point I would like to make is that a Central Bank is the public ownership (government-controlled monopoly) of the most essential and crucial production factor, namely money, credit and capital. Central Banks are central planners of the economy and we all know that central planning always and everywhere ends in a disaster.

Knock knock…who’s there?

THE LAFFER CURVE!!!

Drastically reduce the unnecessary public sector wage bill.

There we go.

Time and time again, governments have proved that price control, taxes and money print do not work. They simply hinder growth, development and future prosperity.

Stop using fake Fiat to make your purchase which will strangle the government regime until real change takes place.

Expropriation Through Inflation is theft of value, ultimately everyone every day is getting poorer and by using the system we are complicit in the crime. Banks, Governments and Citizens need to be seperated, that way the keep each other in Check.

Read the story of the Ria Stone Money
https://miltonfriedman.hoover.org/friedman_images/Collections/2016c21/Stanford_02_01_1991.pdf

Transfer pricing of inter group fees on especially royalties, IP, management fees would be the place to start rather than trying to extract income tax levies on for example Netflix subscriptions. The home country should rightly earn VAT on subscriptions but not sure income tax would work.

Start with the big fish

End of comments.

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