Nothing leads to more delays and inefficiencies than a government department/parastatal trying to go it alone. It is therefore refreshing to see more and more public private partnerships in Zimbabwe.
We saw the Justice Service commission partner a globally known company to help establish a tech-first approach. Now, the government has partnered with another global player, this time to help collect taxes on its behalf.
The Zimbabwe Revenue Authority (ZIMRA) is responsible for collecting taxes and other revenues for the govt. But believe it or not, even with over a thousand employees, they are still understaffed. In a mostly informal economy, Zimra would have to employ half the population to keep track of every business venture in the country. Hence why we ended up getting the 2% tax.
Now, the 2% tax was not the last of our finance minister’s revenue generating innovations. He also introduced taxes on companies that provide digital advertising, content, cloud computing, e-commerce, gambling, betting, gaming and cryptocurrency services to Zimbabweans. Seeing as the global economy is ever going digital, this move made all the sense in the world.
Global effort to tax these companies
The pandemic saw digital service providers thrive as traditional industries struggled, and even other African countries prioritised taxing these companies. The Organisation for Economic Co-operation and Development (OECD) is working on a framework that should guide countries on how to go about it.
Most African countries have relied on indirect taxes like Value Added Tax but are yet to figure out direct taxes. For Zimbabwe, as led by Mthuli, we remain one of a few African countries with direct digital services taxes.
5% ON gross income from satellite broadcasting services in respect of the provision or delivery of television or radio programs, and on e-commerce operators providing or delivering goods or services to persons resident in Zimbabwe FOR revenue in excess of USD 500,000 in any year of assessment
Of course, these companies, which include Google, Facebook and Netflix, will just tack on the tax fee to the final price. We saw how the Netflix subscriptions shot up to include Value Added Tax. So, we’re looking at price increases for Zimbabweans but there’s nothing new there, the prices we pay even for local goods are affected in the same way.
New revenue streams are good for the govt but mean extra work for Zimra. Dealing with players like Facebook is not something Zimra has had to do extensively in the past. So, in order to efficiently collect taxes from such foreign players, Zimra had a few options:
Go it alone and train current employees
It was 2019 when Mthuli Ncube first introduced digital services tax. So, the fact that Zimra only engaged a partner at the end of 2021 means they tried going it alone for a little bit. It didn’t work out as they hoped apparently and I assume the low amounts, for the time being, made it harder to justify this route.
Maybe if the OECD had finalised its project on taxation in the digital economy and governments across the world had the same guidance would we have been able to go it alone.
Hire new employees with required skills
Again, the cost of taking on new employees for a tax regime for which practical implementation is still not nailed down does not seem like the best course of action to take.
Engaging a knowledgeable partner
This became the only option for the time being,
IT is hereby notified, in terms of section 46 of the Zimbabwe Investment and Development Act [Chapter 14:38], that on the 17th of October, 2021, the Republic of Zimbabwe entered into a public-private partnership agreement with Daedalus World Limited of Tortola, British Virgin Islands, in terms of which Daedalus World Limited will assist the Republic of Zimbabwe by providing a revenue collection service through taxing qualifying companies that provide digital advertising, content, cloud computing, e-commerce, gambling, betting, gaming and cryptocurrency services to persons and organisations within the territory of the Republic of Zimbabwe.General Notice 71A of 2022- Public Private Partnerships
Like it is for the Justice Service Commission partner, we once again looked beyond the borders of Zimbabwe. Maybe a suitable local candidate could not be found or maybe we never even looked. In either case, it still doesn’t make for good news. It means we are either ignoring the skills in our own country, choosing to shell out scarce forex unnecessarily. Or that we are not teaching these skills locally, which would actually be worse.
So who are Daedalus World?
Located in one of the most popular tax havens, this company appears to offer the exact services we were looking for. Daedalus says they help countries collect revenue in the digital economy. Daedalus says they understand,
modern taxation and advanced digital technology, and can provide the end-to-end solution from policy and legislation guidance, through cloud software and secure infrastructure to revenue recovery operations and support.Daedalus
That’s all well and good, however it is hard to track down who else has engaged Daedalus in the past. They appear to have been engaged as company secretaries for Greta Energy which appears to have since ceased trading.
The Daedalus website does not shed light on the matter, with the only post on the site being about the Zimbabwean appointment. In fact, the website appears to have been created less than a month ago. Oh, and there is no contact information whatsoever on the website; no email, no phone numbers, no online chat.
So, it is fair to say that Daedalus comes with a harder to verify track record. Quite unlike the Justice Service Commision partner. In the end though, I just hope the partnership leads to success.
My fear for small countries like Zimbabwe
As mentioned, the tax landscape is still a jumbled mess for digital services providers. Each country is implementing vastly different tax regimes. So, like Deloitte noted,
…the nature and scope of the activities that may be regarded as being subject to a digital tax will vary between countries and may even include companies that would not necessarily consider themselves carrying out digital services or e-commerce activities. Thus, it will be imperative that companies operating in multiple jurisdictions across Africa keep abreast of the developments around digital taxes….Deloitte
I hope these service providers are not put off by the extra legal and compliance work in the short term. These companies have experience in compliance with laws in different countries but new and different tax regimes will most certainly result in more work hours hence even new hires. This extra cost might be deemed ‘not worth it’ in the short term, especially in small countries like Zimbabwe. Instead, the companies could wait for the OECD’s guidelines.
That is not to mention the effect this would have on the adoption and growth of such services. Taxes lead to price increases and with every dollar increase, many potential users fall off.
The loss of income would be miniscule to these companies but for the local businesses/content creators reliant on these foreign companies it would be huge. I hope it doesn’t come to that.