On 15 February 2023 the OECD published the VAT Digital Toolkit for Africa.

In most African countries value added tax (VAT) is a major revenue source that brings in more than one quarter of total tax revenues on average. In 2020, VAT revenues in Africa averaged 27.8% as a share of total tax revenues, ranging in individual countries from 10.1% to 45.5%. Africa has experienced fast e-commerce growth in recent years and there is potential for further expansion of digital trade.

To help countries collect VAT in the modern international trade environment the OECD has published an internationally agreed policy framework in the International VAT/GST Guidelines. Work has also been done as part of the BEPS Action 1 Final Report, and detailed technical guidance has been issued on mechanisms for the collection of VAT from non-resident online suppliers; on the part that can be played by online marketplaces and other digital platforms in collecting VAT on online sales; and on the VAT treatment of the sharing and gig economy.

The OECD policy framework for addressing the VAT challenges of digital trade involves creating the legal basis for jurisdictions to assert the right to impose VAT on international digital trade (e.g. by reference to the location of the customer); ensuring the efficient collection of VAT on online sales from non-resident suppliers through simplified VAT registration and collection mechanisms; requiring digital platform operators to collect and remit the VAT on sales carried out through their platforms; and enhancing VAT compliance by non-resident online suppliers and digital platforms through a risk-based compliance enforcement strategy.

The core recommendations of the policy framework for the application of VAT to digital trade include creating the legal basis for asserting the right to levy VAT on services and digital products that non-resident businesses provide to customers in a jurisdiction’s territory; and defining the customer’s location by reference to the “usual residence” for supplies made to private consumers (B2C supplies) and by reference to the “place of permanent business presence or establishment” where the customer is a business (B2B supplies). VAT collection obligations need to be imposed on non-resident suppliers making supplies remotely to private consumers in a jurisdiction’s territory (a vendor collection regime) and this could be extended to apply also to supplies to businesses.

A requirement needs to be introduced for digital platform operators to collect and remit the VAT on online sales made by non-resident suppliers through their platforms. A simplified VAT registration and collection regime can be implemented for non-resident suppliers and digital platforms to complete their VAT collection obligations, supported by online processes. The vendor collection regime could be extended to online supplies of low-value imported goods by requiring non-resident suppliers and digital platforms to collect VAT on these supplies at the point of sale and remit the VAT to the tax authority in the jurisdiction of importation.

Strategies to enhance compliance by non-resident suppliers and digital platforms could include a well-designed, simple registration and compliance regime for non-resident suppliers and digital platforms. The non-resident suppliers and digital platforms likely to be affected by the VAT reforms would need to be made aware of their obligations through early communication and clear guidance on the scope of the compliance regime.

The tax authority should make extensive use of third-party data to back up its risk-based compliance management strategy. The enforcement of compliance by non-resident suppliers and digital platforms could be strengthened by effectively using opportunities for international administrative cooperation.