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Digital services tax in Africa – The journey so far

Implementation of digital taxes across Africa

Published: 6 August 2020

As the COVID-19 pandemic disrupts economies across the globe, companies in the traditional industries, such as mining and manufacturing, are struggling to contain losses and avoid cutting jobs.

The economic slowdown naturally translates into declining revenues for tax authorities across the globe, which will most likely lead to revenue authorities across the world to look at other sources from which to collect taxes. From an African perspective, this will be exacerbated by the fact that most countries on the continent have commodity-based economies that are reliant on high commodity prices which in turn are dependent on supply and demand.

The e-commerce or digital services sector seems to have emerged unscathed. Not only has it survived the measures implemented by various governments to contain the spread of the coronavirus (COVID-19), however, it is seemingly thriving in the current adverse circumstances. Companies operating in the digital economy, including new entrants to the market, have in general reported a jump in earnings and in some instances have had to hire additional staff to meet an unprecedented surge in the demand of their goods and services. Based on this, we expect that digital economy will be high on the list of many African revenue authorities as an untapped source of funds.

While a number of African countries have expanded the scope of their indirect taxes (e.g. value-added tax [VAT]) to cover digital services, the majority have not implemented direct tax provisions. In light of the imminent focus of the African tax authorities on the digital economy hastened along by COVID-19, now is an appropriate time to reflect on the developments of digital services taxes across Africa with a particular focus on direct taxes.

Overview of the OECDs work on the digital economy

In 2015, the Organisation for Economic Co-operation and Development (OECD) issued its report on Action 1 of the Base Erosion and Profit Shifting (BEPS) project which addresses the taxation of the digital economy. In this report the OECD concluded that the digital economy does not generate unique BEPS issues although some its key features may increase BEPS risks. The report went on to recommend that rules on permanent establishments, transfer pricing and controlled foreign companies be enhanced to deal with any additional BEPS risks arising from digital transactions.

Subsequent to the issue of the action 1 report, the OECD sought to find a consensus-based solution to the challenges presented by the digital economy. In this regard, the OECD developed the two-pillar approach.

Implementation of digital taxes across Africa

As mentioned above, a number of African countries have expanded the scope of their indirect taxes to cover digital services, but only a few have thus far implemented some form of direct digital services tax that applies to non-residents with no physical presence in their respective countries.

One of the reasons cited by some African governments for not implementing unilateral tax solutions is that they are waiting for work on the digital economy to be finalised. The OECD had originally planned to finalise the work on Pillar One and Two by the end of 2020. It is unclear whether this deadline will still be met given the COVID-19 restrictions in place across the world.

Any delays in the finalisation of the OECD work may encourage more African countries to implement solutions in taxing the digital economy as the various governments may fear missing out on potential revenue. This would be especially true given the increase in profits realised by digital services orientated companies during the COVID-19 pandemic. In this regard, it is also worth noting that the African Tax Administration Forum (ATAF) has recently also started developing a “suggested approach to drafting Digital Services Tax” that will be used member countries as a toolkit for developing digital services tax laws (see below for more detail). This is an indication that this topic is now a priority for most tax authorities in Africa.

Below is a summary of the digital services tax laws that have been, or are being, implemented in four African countries that we are aware of, being Kenya, Nigeria, Tunisia and Zimbabwe.


  •  Rate : 1.5%
  • Base : Income accruing through a “digital marketplace”, being a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.
  • Threshold : None
  • Effective date : 1 January 2021


  • Rate : 30%1
  • Base: Taxable income where a foreign company transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity.
  • Threshold: NGN25m2
    (approx. USD65K)
  • Effective date: To be confirmed


  • Rate: 3%
  • Base: Gross income from sale of computer applications and digital services.
  • Threshold: None
  • Effective date: 1 January 2020


  • Rate: 5%
  • Base: 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.
  • Threshold: Revenue in excess of USD500K in any year of assessment
  • Effective date: 1 January 2019


Other notable developments

In August 2019, the Egyptian finance minister, following a meeting with a large multinational digital enterprise, indicated that Egypt is considering implementing a digital tax on social media and digital platform advertising. At the time of publication of this article, it was still unclear when the relevant tax laws will be passed or the form that such laws will take.

South Africa was one of first African countries to bring digital services within its indirect tax (VAT) net. However, developments on the direct tax front have been placed on the backburner.

Given that revenue collection is expected to decline as a result of the COVID-19 measures put in place3, it would not be surprising for the South African government to explore the possibility of introducing a direct digital tax. In this regard, most of the groundwork has already been covered by the Davis Tax Committee (DTC) which published its final report in 2016.

In outlining its findings on the implementation of BEPS in South Africa, the DTC recognised the balance that must be struck between the implementation of a digital tax while at the same time taking into account the unique economic circumstances and economic policies that are aimed at encouraging foreign direct investment to foster economic growth. In addition, the DTC recommended that in order to remain competitive globally and to avoid double taxation and double non-taxation of income from the supply of digital goods or services, South Africa should await the outcome of OECD BEPS project on the digital economy.

With the above in mind, the DTC recommended that South Africa should expand its current source rules to include a provision that the source of the proceeds from the supply of digital goods or services is located where the payor for the digital goods or services is located. Framing the source rule on the basis of the payor’s location, would bring within the South African tax net digital transactions in terms of which goods and services are delivered in South Africa but payment is made to electronically to a non-resident. So far, the DTC recommendation has not been implemented. There has also not been any indications that South African government is considering the insertion of such a provision.

In June 2020, ATAF released a policy document titled Domestic Resource Mobilisation – Digital Services Taxation in Africa (Policy Document), which announced that ATAF is in the process of developing a “Suggested Approach to Drafting Digital Services Tax Legislation” (Suggested Approach). The aim of the suggested approach is to provide African countries with a structure and framework for introducing a digital sales tax (DST).
The policy document does not provide the detail regarding the suggested approach. However, it states that DST should not take the form of an income tax but rather suggests some form of a final withholding tax that will be charged in addition to local income tax.
The policy document does not provide a timeframe for the publication of the suggested approach, nor does it indicate whether a draft version will be published for public comment prior to finalisation.


The digital economy represents a potentially untapped source of revenue for many African countries that have seen an increase in e-commerce activity, within their borders, and a decrease in profits from traditional industries as a result of COVID-19.

With the pending finalisation of the OECD work penciled in for the end of 2020 as well as the ATAF suggested approach, which will provide much needed clarity around the implementation of a digital tax, it is likely that more countries across the continent will begin to implement some form of digital tax in the near future.

As seen from the selected jurisdictions above, the nature and scope of the activities that may be regarded as being subject to a digital tax will vary between countries and 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 and in particular pay careful consideration as to whether their activities may result in a tax liability.


1 Included in gross income for CIT purposes

2 Companies Income Tax (Significant Economic Presence) Order, 2020


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