Taxing Times for Development: Tax and Digital Financial Services in Sub-Saharan Africa

Abstract

Digital Financial Services (DFS) present a unique opportunity for ensuring sustainable economic growth of Sub-Saharan African (SSA) countries. Arguably, taxing DFS provides SSA countries with additional revenue with which to eliminate extreme poverty and even improve gender balance. Since a DFS regime for SSA countries also has the potential to attract investment this article considers the impact of taxes and tax-like payments imposed on the DFS industry in SSA and the region’s economic development. It is argued that the taxation of the mobile sector in SSA which represents the evolution of DFS is heavily disproportionate. This is demonstrated by comparing the sector’s earnings in total revenues which are significantly larger than the share the sector contributes to the domestic state’s GDP. The article, therefore, examines multiple “small taxes” and tax-like charges affecting providers and consumers of DFS in SSA and analyses such practices from the perspective of specific principles of a good tax policy, such as the principles of equity, neutrality, simplicity and certainty. It explores the utilization of these principles to form part of a DFS tax regime by examining several African states approaches to taxing DFS, questioning whether DFS tax resonates with the taxation principles. The article recommends improvements in DFS tax policy design. The principles of good tax policy, as well as practical experience of some SSA countries, make it possible to crystalize the tax policy recommendations made for enabling the development of DFS and ultimately, sustainable economic growth. The article proposes taxing DFS in a simpler, more convenient and effective manner where possible given the potential positive socio-economic impact the technology might have.