Tanzania has become the most recent nation to impose a Digital Services Tax (DST) on large American technology companies, in a growing trend among African countries and the rest of the world.
Tanzanian Minister of Finance and Planning, Mwigulu Nchemba, announced on Tuesday that the East African country will be imposing a 2 percent tax on the revenues of large multinational tech companies operating in Tanzania. The tax is set to take effect in July but must first be approved by the Tanzanian parliament.
Digital Services Taxes are discriminatory taxes that unfairly target large American tech firms which do business abroad. DSTs also hurt consumers in the country where they are implemented as costs are passed on through higher pricing. Although U.S. Trade Representative (USTR) Katherine Tai has spoken out about DSTs in other countries in the past, she has yet to take action against the growing trend of nations across Africa enacting these harmful taxes.
For example, in April Ghana implemented new rules taxing digital platforms without a physical presence in the country at a rate of 18.5 percent. In January, Nigeria introduced a 6 percent tax on the turnover of non-resident digital services companies. Algeria, Cameroon, Kenya, South Africa, and Zimbabwe have also introduced new taxes of their own on foreign digital companies.
In an example of the negative effects of digital taxes, Tanzania’s northern neighbor, Kenya, not only has a 1.5 percent Digital Services Tax but also introduced a 16 percent value-added tax (VAT) on digital services in January 2021. Within three months, customers were faced with an extra 16 percent fee on Google Play Store transactions, and Facebook and Netflix soon followed suit with fee hikes of their own. Most recently, holdout LinkedIn announced that it will be hiking its membership rates by 16 percent in Kenya to account for the burden of the government’s digital VAT.
The Kenyan government may have begun to learn a lesson about the harms to their own citizens caused by taxes on foreign digital companies: In the recently approved 2022 Finance Bill, Kenyan lawmakers reportedly rejected a proposal to double the country’s DST from 1.5 percent to 3 percent, arguing that such a measure would only increase costs for consumers. It may be beneficial for the Tanzanian government to learn from Kenya’s negative experience with DSTs as well.
As digital taxes continue to spread across the African continent, USTR and President Biden must take action to ensure that American companies are not targeted by these practices and fight back.