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New research from ActionAid International reveals that 20 developing countries including Kenya could be missing out on as much as $2.8bn in tax revenue from Facebook, Alphabet Inc. (parent company of Google) and Microsoft due to unfair global tax rules.
Potential taxes raised from these three ‘Big Tech’ companies alone could address the World Health Organisation’s (WHO) estimated shortages of more than 1.7 million nurses in these countries within just three years.
$2.8bn could pay for 729,010 nurses, 770,649 midwives or 879,899 primary school teachers each year in 20 countries across Africa, Asia and South America.
The research is released as the G20-mandated and OECD-led corporate tax reform process failed to meet the original deadline amidst political and technical challenges; and in advance of Alphabet Inc. publicly reporting its latest quarterly financial results on 29 October, following Mondays’s shareholder conference.
ActionAid’s new research analyses Facebook, Alphabet and Microsoft and the potential tax revenue that their market activity could generate, if the tax regime and resulting corporation tax bills better reflected these companies’ economic presence. ‘2020 Quarter Two’ reporting of ‘Big Tech’ companies revealed how shares have soared as a result of increased sales during the outbreak of the pandemic.
Little is known about how much tax these companies are currently paying in developing countries, as they are still not required to publicly disclose this information. This research shows, however, that billions could be at stake in the long overdue reform of international corporate taxation – enough to transform underfunded health and education systems in some of the world’s poorest countries.
The world desperately needs a global tax agreement which ensures companies are taxed according to their real economic presence. Developing countries offer tech businesses new markets, increased global brand recognition and billions of new users’ data, which translate into continuing revenue growth.
The report comes in the wake of increased scrutiny by Kenyan regulators, who in recent months have sought to increase the taxes paid by tech multinationals in the country.
In July, the National Treasury through the Finance Act 2020 introduced the digital services tax, payable on income accrued in Kenya from services offered through a digital market place.
The Kenya Revenue Authority (KRA) said the new tax will govern both international players and local service providers, including those offering mobile money services.
Last year, KRA invited bids for a technology firm to install a monitoring and payments system to track and audit transactions between local and international digital merchants and their customers.
The tax collection system entails an integrated payment gateway solution to identify and authorise payments through the settlement of data to and from merchants’ online portals to merchants’ banks.
Treasury has also through the VAT (Digital Marketplace Supply) Regulations 2020, proposed a new VAT levy on digital products and services.
“VAT shall be charged on taxable services supplied in Kenya through the digital market place,” explains the regulations in part. “Taxable supplies made through a digital market place shall include electronic services and downloadable mobile apps, e-books and movies.” The new law does not indicate the VAT rate but is pegged on the VAT Act, 2013 that set a 16 per cent rate, which was revised to 14 per cent in April this year following the outbreak of Covid-19.
ActionAid is also calling for a global minimum rate of corporate tax to resolve the issue of multinationals using tax havens to lower their tax bills. Governments urgently need this money to fund public services such as healthcare and social protection for the billions of people affected by the Covid-19 pandemic.
If all governments compelled all companies to publicly report their financials in each country where they have a presence, a clear route to fair taxation would be possible.
The potential $2.8bn ‘tax gap’ calculation is based on the share of the three tech giants’ global profits, relative to their number of users and adjusted for countries’ GDP per capita, which accounts for users’ relative values across the 20 countries studied.
India, Indonesia, Brazil, Nigeria and Bangladesh are the markets studied with the highest ‘tax gaps’ from these three companies. The total ‘tax gap’ for the 20 countries contained in the research is $2.8bn, equivalent to 729,010 nurses, 770,649 midwives or 879,899 primary school teachers.
The WHO estimates that the 20 countries studied by ActionAid need to employ at least 1,790,000 more nurses by 2030 to achieve their benchmark of 40 nurses per 10,000 people. These shortages of nurses could be fully covered in just three years if global tax rules allowed fair taxing of these three ‘Big Tech’ companies and the revenue was allocated for this purpose.
Commenting on the research findings Alex Cobham, CEO, Tax Justice Network, said:
“The Covid-19 pandemic has confirmed the urgent need to reprogramme our tax systems. In 2013, the G20 asked the OECD to deliver reforms that would make sure taxable profits were declared where companies’ real economic activity takes place.
“Eight years later, ActionAid’s research shows there has been no progress – so that even in countries where public services are desperately short of resources, the excess profits made by digital companies during the pandemic, while local businesses are ordered to lock down, are not giving rise to a fair tax contribution.”
Data is revealed in advance of Alphabet reporting its latest quarterly profits on 29 October. It is expected that Alphabet will reveal huge profits which depend significantly on the 1.5 billion people in these 20 countries who use their products.
In the absence of more transparent reporting requirements it is impossible to determine how much tax, if any, Alphabet or other big tech companies pay to the governments in these countries. If global rules were fair and effective, they could raise enough in tax from Alphabet alone to employ 244,360 nurses, transforming the public health response to Covid-19 in these 20 countries.
Additional Reporting By Standard