A poorly thought out tax regime on online services may in the long run be counterproductive if majority of the global players chose to opt out of the African markets.
In other words the digital service providers may weight the cost benefit of paying the tax demanded vis a viz the advertisement revenues accruing from the African market.
The question of whether or not to tax online services depends on the definition of what an online services is.
In the broadest definition of the word, an online service is any service delivered over the internet. At the highest level, this would include voice, video and data services.
Traditional providers of these services, namely telcos and ISPs are already taxed and so that may not be the target of the upcoming policy to tax online service providers.
The target group for the new tax bracket would be Netflix, YouTube, the Facebooks, the Googles, and the Ubers of this world. Essentially, the target group is the global digital players with consumers within the local or domestic markets.
It is a fact that these players make insane amounts of money, largely from selling advertising services to their millions if not billions of subscribers scattered across the globe.
They however only pay tax to the countries in which they are headquartered.
This means that Kenya and most of the emerging markets do not get to benefit from this tax income – even as most of the new consumers of these digital services are from these emerging markets.
So a deliberate policy to tax these services does seem fair and timely, particularly because other developed countries in Europe are considering taxing these largely American digital companies.
It is however quite easy to publish tax law requiring these digital companies to remit taxes based on the number of users they have in Kenya. The bigger question revolves around implementation.
Just because Europe or China can force Netflix, Facebook or Google to pay tax in their jurisdiction does not necessarily mean Kenya can do the same.
The incentive to operate in the lucrative European or Chinese markets makes it easy for these digital giants to comply with any tax laws proposed in these markets.
Kenyan or African markets on the other hand may have a promising number of current and future users; they do not however translate to significant advertiser revenues.