As already mentioned in an earlier article, YouTube is now going to be collecting taxes from YouTube creators who live outside the United States. Depending on how much revenue a YouTuber is making in the United States this can lead to quite a dent in earnings.
So what is the rationale for this new change? Well according to YouTube and the IRS (the US’s version of ZIMRA) earnings made by YouTubers are now being classified as royalties. The US government feels that since these YouTubers are making billions each year off American citizens it’s only fair that these YouTubers pay taxes for essentially operating in the United States.
Sounds familiar? It’s the same nonsense that is peddled by countries like Zimbabwe under our current Finance Minister. South African companies like Multichoice who are struggling to compete against Netflix and other giants feel the same way too. Even some people in the EU and Australia have advocated for something along these lines.
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Zimbabwe has actually gone beyond advocating. The government has already taken some tentative steps in making this whole “tax internet giants” thing a reality. Facebook and Netflix are already started charging Zimbabweans Value Added Tax which they happily remit back to the Zimbabwean government where it is squandered by our beloved country’s corrupt machinery.
On the surface, it all seems like a good thing. These giants are making money by charging Zimbabweans for various services such as streaming services for Netflix and ads for Facebook. It’s as if they have set up shop in Zimbabwe without having actually set foot in here. Local businesses (hopefully) pay taxes so why shouldn’t these foreign entities do the same? It’s only fair!
The folly of it all
You don’t even have to dig hard before things start to go awry. For Zimbabwe, the problem lies in the fact that it’s a small country. Having a population of 15 million people really doesn’t give you much leverage when the bulk of those people are just plain poor. How many Zimbabweans actually buy ads on Facebook? How many people here actually pay for Netflix? How much revenue are these countries really making from off Zimbabweans?
The truth is probably not much. Neither Facebook nor Netflix publishes data on this. I would be very suprised if Netflix is making US$100 000 from Zimbabweans. Facebook would be lucky to make half that much. For the most part we are just free riders. These companies don’t mind providing us with services because it currently probably doesn’t cost them that much to do so. They just flip a switch and couple of Zimbabweans start streaming.
When all things are considered the revenue they make here isn’t that much in the grand scheme of things. This means that the Zimbabwean government doesn’t have much to work with when it comes to leverage. This almost certainly explains why the best deal they could get involved us, Zimbabweans simply being asked to pay more when we sign up for Facebook and Netflix.
Facebook and Netflix are not really being taxed at all! We the people are just being asked to pay extra money. Sure local companies like Multichoice would be happy with such a setup as it makes Netflix slightly more expensive and thus less competitive but, to be honest, it will probably not matter much as those who want Netflix will just stick with it. Nobody is going to go back to DStv because they are now being asked to pay $3 more dollars.
Digging deeper doesn’t help
Remember the argument that this taxing of foreign companies will result in more revenue for the government? It’s only true if these countries do not start retaliating the same way. In fact, when reciprocating measures are put in place Zimbabwe will be worse off than it currently is! The way YouTube is now going to be operating is an indication of what reciprocation looks like.
Taxation is a complicated field and in my blog post elsewhere I explain how it all works regarding the new rules vis a vis Zimbabwe. The long and short of it is that when the countries from which these tech companies are located also start charging taxes on revenue made in their countries the same way Mthuli Ncube has been harping about and actually doing, Zimbabwe stands to lose more than it gains. Like a whole lot more.
As already pointed out, these tech companies make very little revenue from Zimbabwe. In contrast, everybody who uses Adsense knows that US viewers bring in more money compared to say Zimbabwean viewers. If that US generated income is taxed it means that money doesn’t go to ZIMRA and stays in the United States.
Again it’s all complicated but in simple terms, the rules say you only pay taxes once. If you pay taxes in the US it’s not fair for you to be asked to pay taxes here in Zimbabwe, right? To make sure that doesn’t happen whatever you pay in the US will be deducted from what you were supposed to pay in Zimbabwe had you not paid tax in the US. Confused? Just know this means less revenue for the Zimbabwean government.
A tangled mess
This is Zimbabwe and the US in the ring right now but things are bound to get worse when every country gets into that ring and starts to demand taxes from revenues generated in their countries. If everyone gets in there it’s over 200 competing tax codes. No one will win in that setup least of all a greedy little mangy country called Zimbabwe. A country whose leaders just wanted to consume anything and everything.
The YouTube tax episode is very revealing. It betrays the superficial thought process that goes into crafting policies in Zimbabwe. They just appear rushed with very little forethought.