Which comes first, tax or profit? Like you i think the answer is obviously profit because you can't pay taxes on losses.
This article is a sequel to "The New Economy is Digital: What's that have to do with me?" you can read it here.

Across the circles of the adoption of digital economy and its technologies one disruption has been in the centre of debates. The reality of the potential threats to tax systems. If i may put it frankly " more companies will not pay taxes".

Companies like Uber, Amazon, are examples of Internet based  business that are harnessing the benefits of  digital economy as it were. These  businesses have their headquarters hosted on a website that is accessible anywhere in the world.

And that trade in different currencies without physically moving money. Such opportunities have paved the way for some Nigerian internet companies like jumia, Konga and thousands of other services and firms that are now on the digital space.

Why Is Taxing A Digital Economy A Problem?

The truth to this problem (which is though a global one is more pronounced in the third world), is that our tax system as it is today sucks. It has not been efficient or effective.

Another challenge is the constraint of the tax law which requires that for a business to be taxed it must have a physical location.

What it means in essence is that a fully digital business cannot be taxed even if it earns in billions of dollars per annum. To illustrate, some of the biggest tech firms in Nigeria like Facebook, Twitter and Google pay no taxes,not even a kobo yet they make millions of dollars in annual revenue.

Have our tax agencies gone spineless?

 Maybe not, considering that even if we had a great traditional tax system and the law provides for taxing a digital company that the technicalities and high cost of enforcement digital taxation is still elusive.  Taxing a digital company can quickly become a battle of territories.

How does FIRS for instance calculate how much revenue Netflix or even Iroko got from Nigeria alone. When transaction is done online. Do we have such sophistication?.
But the problem of taxing digital companies even in countries where they have headquarters has been seen to pose quite a bit of difficulty. The recent cases where facebook and google had to be coerced to pay a more worthy tax of their earnings is an indication of a larger problem.

Despite the global discussion on digital taxation which  OECD hosted, there is yet to be any clear directions. Countries hence must study the new trend create a sustainable tax system that can cover the dynamics of both the traditional and digital economies.

The Other Side of The Coin

Let's not get one sided with our arguments, many firms are well looking for better avenues to make more profit and the digital economy provides just the way. If they have developed a technology and created the digital infrastructure that the government is supposed to create and don't they deserve a break?

If governments are ready to collect digital taxes it should show this by developing the capacities necessary for the localisation of such technologies and infrastructure. At least it should make the environment investment worthy for firms seeking more profits and expansion to build these technologies.

The debate as to whether government can and should collect more taxes or less in the new digital economy may go on. But instead of fuelling such, wise administrations will build systems to prepare them for the future today.


Next Week: I write on the impact of twitter and how we can harness it Stay tuned

[Visit us again next saturday at 9:45 GMT+1]

Popular posts from this blog

Brilliance is Evenly Distributed - Here is a model

Before We All Become Entrepreneurs