tralac's Daily News Selection
A preview of the East African Business and Investment Summit (28-29 November, Arusha)
Harmonising airspace is one of the issues that the East Africa Business Council will discuss during the East African Business and Investment summit slated to take place in Arusha later this week. Denis Karera, vice chairman of the Council, said the summit seeks to address the most pressing issues challenging business in the region, especially cross border trade. “Non-tariff barriers impede cross border trade. One of the key things we want to raise, again, is domestication of airspace so that our airlines can move easily and quickly and tickets can become cheaper as well.
He said that non-harmonized and heavy duties imposed on airlines landing at different African airports drives up the flight ticket prices. “You have to wonder why flight tickets are expensive in the region. Rwanda charges taxes, Kenya charges taxes, and Uganda charges taxes among others on handling services for every landing. We have to deal with this and domesticate airspace as it is happening elsewhere. We want to advocate so that governments slash such heavy taxes. We have been discussing this for so many years and now we need harmonization of the airspace.” He cited an example of some airlines that charge $800 for a passenger flying from Kigali to Nairobi for one hour. “This impedes movement of people. A flight ticket price could go for $110 but due to heavy taxes, it rises,” he said.
India and South Africa have adopted a tough stand against the current moratorium on levying customs duties on electronic transmissions at the World Trade Organization, forcing the US to come to the negotiating table for the first time, said trade envoys. The existing moratorium will expire at the end of next month, unless it is extended for another six months. The moratorium has been extended since 1998 on a biennial basis at every WTO trade ministerial conference. At a meeting of the WTO’s informal General Council on Monday, the US offered a quid pro quo for extending the e-commerce moratorium by six months until the World Trade Organization’s twelfth ministerial conference in Nur Sultan, Kazakhstan, in June 2020.
In return, the US has indicated that it will agree to organise a workshop early next year, as demanded by India and South Africa, for assessing the scope and potential revenue implications of electronic transmissions, said a trade envoy, who asked not to be quoted. Previously, the US had vehemently opposed a proposal from India and South Africa for organising a workshop by experts drawn from the UNCTAD (United Nations Conference on Trade and Development), the ECIPE (European Center for International Political Economy) and the Paris-Based OECD (Organization for Economic Cooperation and Development) to present their conflicting assessments on what would constitute the e-commerce transmission and their potential revenue implications.
Work programme and moratorium on electronic commerce: Communication from Chad on behalf of the LDC Group
The following communication, dated 14 November 2019, is being circulated at the request of the delegation of Chad on behalf of the LDC Group: As the expiration of the e-commerce decision approaches at the end of 2019, the LDC Group calls n the four designated bodies under the Work Programme, to delve deeper into the benefits and costs of e-commerce for LDCs. LDCs are interested in both aspects of this platform and the relevance of e-commerce in improving trade for LDC traders and consumers. The LDC Group appreciates the submissions of others in the context of the Work Programme over recent years, including those on data flows and on the customs duties moratorium. In its interventions regarding the Work Programme at the Council for Trade in Goods and the Council for Trade in Services, the LDC Group has identified some challenges for LDCs in the utilization of e-commerce for consideration in the WTO e-commerce Work Programme including the following:
Limited knowledge among enterprises, government players, and regulators of e-commerce;
Lack of mechanisms to start up enterprises in e-commerce business;
Concerns about possible adverse effects of e-commerce and how to mitigate them;
Limited existence of and affordable information technology (ICT) infrastructure (noted above, e.g., internet, broadband coverage, electricity, telecommunications infrastructure and services);
Access to credit cards (the main vehicle for on-line payments) and high incidence of unbanked consumers or limited experience with on-line payments;
Adequate facilities for physical delivery of purchases online;
User mistrust of quality and effectiveness;
Inadequate online payment facilities;
Trade finance for LDC e-commerce enterprises;
Limited skills among enterprises desiring to use e-commerce and ICTs strategically for B2B, B2C, or B2G buying and selling goods and services;
Lack of statistical data on electronic commerce in LDCs;
Weak legal and regulatory frameworks where needed for example consumer protection laws;
Lack of clarity on the nature of electronic transmissions and the ability of LDCs to apply internal taxes versus customs duties, where appropriate.
ATAF 4th International Conference on tax in Africa: Outcome statement
The conference (19-21 November, Kampala) was held on the theme: Innovation – digitization and harnessing technology to improve tax systems.
Extract: Participants recognised that private sector players in Africa including the African Industries Tax Association, need to understand the global tax debate of taxing the digitalised economy. Therefore, participants required African governments and ATAF to include African Industries in the discussions as businesses can add a lot of practical business inputs and systems expertise.
Participants at the 4th ICTA expressed outrage with regard to a moratorium by the WTO on imposing customs tariffs on e-commerce transactions. They observed that a temporary or permanent ban results in more significant revenue losses for African countries that are net importers, quoting research that shows that revenue losses due to the moratorium are significantly larger than the revenue losses for developed economies.
The meeting highlighted that African countries seek to expand their revenue base and domestically expand the economies. However, participants were concerned that a permanent moratorium would limit their options to protect domestic products and services traded online. They urged policymakers to actively challenge the moratorium based on these key arguments, both individually through their missions, or through the African Union. They welcomed the objective of the OECD’s “Unified Approach” of allocating taxing rights to market jurisdictions, and were particularly supportive of the following details of the Unified approach;
The meeting agreed that as a result of digitisation, African countries should be able to apply VAT/GST on digital services acquired by their citizens from suppliers outside their jurisdictions. As the norm in international trade for VAT/GST systems is the destination principle, participants agreed that countries should apply the destination principle to services and intangibles acquired from overseas businesses. Additionally, similar to South Africa’s application of VAT on digital services, participants felt that African countries should require foreign suppliers of digital services to VAT in their countries. Nonetheless, participants acknowledged the potential challenge of enforcing collection of such VAT; hence, the need for investing in technologies to track the transactions digitally.
It was observed that as countries introduced VAT, revenue shot up and immediately went down as a result of more significant trading through e-commerce, which existing VAT legislation had not previously foreseen. While e-commerce has resulted in decreased VAT revenue collections, it has provided authorities with an opportunity to enhance the audit trail through the use of data-driven methodologies. It was, therefore, up to tax administrations to take advantage of this opportunity to strengthen audit capabilities, mainly where countries are willing to procure effective systems.
As a result of the various changes in policy and law brought about by digitisation, participants called on African governments and tax administrations to improve engagement with the private sector. Although the private sector is deemed in many countries as being on the other side of the fence, participants recognised that they are essential stakeholders in the tax collection process, and their involvement provides policymakers with a business perspective of the issues which is invaluable to policy design. The engagement of private actors will also reduce the uncertainty that may harm business decisions.
Participants recognised that private sector players in Africa including the African Industries Tax Association, need to understand the global tax debate of taxing the digitalised economy. Therefore, participants required African governments and
ATAF to include African Industries in the discussions as businesses can add a lot of practical business inputs and systems expertise.
The meeting observed that based on the current digital debate, in 2020 the world will decide on new taxing rules that will drastically change the international tax system. Therefore, participants called on African countries to mobilise mainly through the African Union by Heads of States and Finance Ministers the pursuit of African tax interests on the global stage. Concern was expressed that if Africa doesn’t act now, it will be too late to influence the outcomes.
Ambassador Muchanga addressed the 2019 Annual Retreat of the African Group of Ambassadors in Geneva on WTO issues. Ambassadors were invited to lobby for the support of the African Union renewed application for observer status at the WTO, which was formally submitted recently.
Addressing the 2019 Annual Retreat of the African Group of Ambassadors in Geneva on WTO issues, WTO Director General Ambassador Roberto Azevêdo reiterated the WTO's readiness, within its ability, to extend support for the implementation of the AfCFTA.
Ethiopian Prime Minister Abiy Ahmed, Alibaba Group founder Jack Ma, and Alibaba Group Director and Ant Financial Services Group Chairman and CEO Eric Jing witnessed the signing of three Memoranda of Understanding between the Ethiopian Government and Alibaba establishing a eWTP Hub in Ethiopia. Speaking after meeting with him, Prime Minister Abiy indicated that the platform will support the country’s national digital transformation strategy, PM Office said. “I am quite pleased to welcome Jack Ma, Founder of Jack Ma Foundation and Partner of Alibaba Group, to Ethiopia,” the Prime Minister noted. His visit follows our meeting at Alibaba HQ in Hangzhou earlier this year, Abiy added.
The eWTP (electronic world trade platform) Hub is intended to enable cross-border trade, provide smart logistics and fulfillment services, assist Ethiopian small and medium-sized enterprises (SMEs) to reach China and other markets, and provide talent training. “We will continue to support the creation of a more inclusive, digitally-enabled global economy, where small businesses can participate in global trade. We look forward to working together with entrepreneurs and SMEs from Ethiopia and other African nations to seize the opportunities provided by the digital era,” Jack said.
The University of Pretoria’s Future Africa campus, in partnership with the US Chamber of Commerce’s US-Africa Business Center and Microsoft, recently hosted a multi-partner forum on digital drivers that could grow Africa’s digital economy. The forum, themed “Digital Drivers: Enabling the Growth of Africa’s Digital Economy”, aimed “to bring together government, policy and industry experts, academics and innovators to stimulate and foster discussion on relevant topics, with the aim of highlighting the policy issues and recommendations needed to effectively address the challenges.” The event was the second in the US-Africa Business Center’s Digital Transformation Series, launched last year in Nairobi with Kenyan President Uhuru Kenyatta, where a report was delivered on the evolution of digital economy development across Africa and the best ways in which African economies can maximise the benefits of implementing the technology.
WTO’s new Trade Monitoring Report: Trade restrictions among G20 economies remain at historic highs
The WTO’s new Trade Monitoring Report (pdf) issued on 21 November shows that G20 economies from mid-May to mid-October 2019 introduced import-restrictive measures covering an estimated USD 460.4 billion worth of traded merchandise. This represents a 37% increase over the previous period going back to mid-October 2018, and is second only to the $480.9bn coverage of import-restricting measures reported between mid-May and mid-October 2018. The report notes that with restrictions accumulating over time, the share of global trade covered by such measures has soared. WTO Director-General Roberto Azevêdo called on G20 economies to de-escalate trade tensions to spur investment, growth and job creation. “The report's findings should be of serious concern for G20 governments and the broader international community. Historically high levels of trade-restrictive measures are having a clear impact on growth, job creation and purchasing power around the world. We need to see strong leadership from G20 economies if we want to avoid increased uncertainty, lower investment and even weaker trade growth. We have seen how world trade has stalled during the review period. The WTO downgraded its forecast for merchandise trade growth in 2019 to 1.2%, the slowest since the crisis a decade ago, much lower than April's estimate of 2.6%. New trade restrictions and increasing trade tensions will only add to the uncertainty that is dragging down growth in the world economy. This trend needs to be reversed.”
Foreign ministers from the Group of 20 major economies agreed Saturday that it is “urgent” to reform the World Trade Organization, Foreign Minister Toshimitsu Motegi said, amid an escalating U.S.-China tit-for-tat tariff trade war. Motegi, serving as the chairman of the G20 foreign ministers gathering in Nagoya, also said at a news conference that ongoing negotiations on a sprawling Asia-Pacific free trade agreement should be concluded by all the original 16 member states, including India, which pulled out of the agreement earlier this month. “As trust in the multilateral framework is now being undermined, the G20 has shared the view that the WTO should be reformed so that it can address several current issues,” Motegi said after the end of the two-day meeting. At the gathering, the foreign ministers discussed reforms to the WTO, as Japan, the United States and other countries are pushing for the Geneva-based organization to improve its dispute settlement system — a point touched on in a declaration issued by G20 leaders after their summit in Osaka in June. US Secretary of State Mike Pompeo, however, did not participate in the G20 meeting, apparently reflecting Washington’s lack of interest in multilateral economic and financial policy dialogue. [Statement delivered by SA's Deputy Minister Mashego-Dlamini]