EU calls for common position on tax for digital economy

 

28 May 2014

Commission report says corporation tax rules may have to be adapted to respond to digitalisation

European Union member states should adopt a common position on corporation tax in the current debate on changing global tax rules, according to a high level European Commission report on the digital economy.
 
The report says that the OECD’s Base Erosion and Profit Shifting project (Beps), which is examining how to combat aggressive tax avoidance by multinationals, will be fundamental to addressing the issue of levying corporation tax in the digital economy.
 
The digital economy does not require a separate tax regime, but current rules may have to be adapted to respond to the digitalisation of the general economy, according to the Report of the Commission Expert Group on Taxation of the Digital Economy, released today.
 
The report comes a day after the Department of Finance announced that it is holding a public consultation process on Beps, aimed at seeking ideas on how Ireland can enhance its competitiveness and protect its reputation in a post-Beps environment. The Beps project aims to ensure taxation rights are better aligned with real economic activity, an objective which “presents potential opportunities for Ireland as a hub for the centralisation of international business operations,” according to the department. 

The consultation process runs to July 22nd, and tax policy issues that arise will feed into Minister for Finance Michael Noonan’s considerations for Budget 2015.
 
Yesterday senior tax adviser Feargal O’Rourke, of PwC, suggested that Ireland would have to change its rules on corporate residency and that it would be best if it did so in a pro-active way rather than waiting until “realpolitik” made it impossible to resist.
 
Ireland’s corporate residency rules have come in for significant criticism because of the role they play in the global tax structures of digital corporations such as Google, Microsoft, Apple and Facebook.
 
The commission report said digitalisation greatly facilitates cross-border business and that removing barriers to the single market, including tax barriers, was more important than ever.

“Tax barriers for small and medium-sized enterprises operating in the single market should be removed,” it said.

It commended the upcoming move to a “destination-based VAT system” for digital services and recommends that this be extended to all goods and services, in business to consumer transactions, in the future.

In relation to the Beps process, it recommends that priority should be given to three areas: countering harmful tax practices; reviewing transfer pricing rules; and restoring taxable nexus connections. The latter has to do with how it is decided that a particular business has a “taxable presence” in a particular economy.
 
The report said the digitalisation of the economy may have changed the distinction between auxiliary activities and core activities. It also said it support the Beps work looking at whether and under what circumstances sales of goods or services of a company in a multinational group should be treated as effectively concluded by dependent agents.
 
This is an issue that arose in debates in the UK where politicians queried sales by Google in the UK being booked in Dublin when the company had signficant support services operating in the UK.
 
The report said that the EU member states should adopt the simplest and most effective solutions arrived at by Beps to these types of problems, bearing in mind that the project might agree a number of options.
 
The OECD Beps project is being conducted at the request of the G20 and is to produce a number of recommendations later this year, for the consideration of G20 finances ministers, to be followed by a second set of additional recommendations late next year.
 
The European Commission’s seven-member expert group was headed by Vitor Gaspar, a former finance minister of Portugal, and included Irish tax specialist, Mary Walsh.
 
 
Source: The Irish Times

Zimbabwe: Ecocash and Mastercard to Give Three Million Mastercard Debit Cards Ecocash Customers in the Next Five Years

 

1 August 2014

Zimbabwe’s Econet’s Mobile Money service, EcoCash and MasterCard are set to give over 3 million MasterCard debit cards to EcoCash customers in the next five years after EcoCash announced a landmark agreement with MasterCard that will significantly assist in reducing cash dependence and increase financial inclusion through the provision of electronic payments in Zimbabwe.
 
This is the first time that physical MasterCard debit cards are available to people using mobile money services in Africa, and is the largest roll-out of secure EMV Chip and PIN payment cards in Zimbabwe to date.

“The adoption of electronic payments is critical to Zimbabwe’s economic development. Reducing dependency on cash while increasing financial inclusion benefits the whole country including the government, industry sectors like tourism and retail, merchants and citizens,” says Douglas Mboweni, CEO of Econet.

 

Today, 40% of Zimbabweans are financially excluded and another 22% rely on informal financial products or services. Through its mobile money products, EcoCash has successfully provided a means for unbanked and under-banked citizens to participate in the formal economy and has reduced the demand placed on banks for scarce and costly currency.
 
For the first time, EcoCash customers will be able make use of their EcoCash funds in ways previously closed to them. By obtaining an EcoCash MasterCard debit card, EcoCash customers will be able to withdraw money from MasterCard-licensed ATMs and pay for goods and services at millions of merchants that accept MasterCard payment cards, both in Zimbabwe and internationally.

“The integration of these products and services are particularly exciting for EcoCash customers,” says EcoCash CEO Cuthbert Tembedza. “We look forward to offering Zimbabweans even more ways to benefit from the security and convenience of electronic payments as they engage with, and contribute to, the formal economy.”

 

Today, over 85% of retail payments globally are still carried out using cash or cheque, with the percentage being much higher in Africa. As a payment option, cash takes time to get at, is riskier to carry, and cash costs society as much as 1.5% of GDP, depending on the country. It is for these reasons that governments are rapidly driving the conversion from cash to electronic payments as they realise the benefits of a cashless society, namely increased transparency, cost effectiveness, financial inclusion, foreign investment and economic growth.

“The EcoCash MasterCard debit card is a milestone towards realising MasterCard’s vision of a cashless society,” says Charlton Goredema, Vice President and Area Business Head, Southern Africa, MasterCard.“Demonstrating the value of close collaboration in the financial services and payments technology industries, EcoCash and MasterCard have devised an innovative payment product that addresses Zimbabwe’s market realities, particularly by acknowledging the impact mobile money has on the country’s economy.”

“As EcoCash enables its customers to benefit from MasterCard’s global payments network, we are assisting Zimbabwe to integrate its economy with those elsewhere in the world. Importantly, we are also contributing to the financial freedom of individuals,” says Goredema.

 

Source: CIO East Africa (Nairobi)

Zimbabwe: Could Zim become Africa’s first cashless economy?

 

10 July 2014

Strive Masiyiwa, founder and chairman of Econet Wireless, wants to turn the company’s mobile wallet technology, known as EcoCash, into Zimbabwe’s primary method of payment.
 
Masiyiwa claims that it will no small task; however, he essentially wants to replace the current printed currency with a digital alternative. If successful, Zimbabwe will indeed become the first paperless economy in Africa.
 
While this may seem like something seen it futuristic films, the idea may not be as far fetched as one may think.
 
In an article by Fortune Magazine, it is said that Zimbabwe is need of an alternative to cash, more so than any other country in Africa.
 
According to the article, in late 2000, the country suffered from such mind-boggling hyperinflation — at its height in 2008, a can of Coca-Cola that cost ZIM$50 billion in the morning would cost ZIM$150 billion at the close of business on the same day — that the government abandoned its own currency in 2009 in favour of currency from other, more stable countries. Today, Zimbabwe’s economy relies almost exclusively on the U.S. dollar.
 
But the “dollarisation” of the economy has created a new set of problems. The limited number of bills in circulation are old and tatty, and shopkeepers are unable to make change due to a shortage of coins. That means shoppers are forced to accept change in the form of chewing gum, cigarettes, and other small items.
 
Enter EcoCash.

“EcoCash has been able to take advantage of this situation by providing an alternative medium of exchange from physical dollars,” says Laurence Chandy, a development specialist at the Brookings Institution in Washington. “When payments are made at stores, change can be provided in the form of an airtime top-up or mobile money.”

 

There’s no question that EcoCash is filling a basic consumer need in one of Africa’s economically troubled countries, where a great deal of the population has been excluded from the formal banking system.
 
In a little over two years, the service has registered 31% of Zimbabwe’s adult population, a group responsible for more than $200 million in transactions per month — that’s about 22% of the country’s GDP — using their mobile phones.
 
For Econet, the service is a way for it to diversify its portfolio away from its core voice and data business, where revenue growth has been weak.
 
With an early success on its hands, Econet is staking much of its future growth in Zimbabwe — and other African countries in which it does business including Nigeria, South Africa, and Botswana — on non-voice revenues that come from programs like EcoCash.
 
Driving EcoCash growth… Darlington Mandivenga, CEO of Econet Services

“EcoCash is a strategic response to a strategic challenge,” says Darlington Mandivenga, CEO of Econet Services, a subsidiary tasked with expanding the company’s non-traditional revenue streams, including microinsurance and microfinance. “What is happening in the telecoms industry is that revenues are stagnant, if not on the decline, with [average revenue per user] under pressure for various reasons such as competition and market saturation.”

 

To help EcoCash become Zimbabwe’s dominant payment system for retail transactions, Econet has embarked on an aggressive merchant acquisition campaign. It is sacrificing short-term profitability by paying out 80% of revenue in agent commissions to build a strong and dedicated network.
 
At the same time, the company is using bank-grade technology to fast-track interoperability with Zimbabwe’s major financial institutions and make it easier to deploy new mobile services.
 
One of those services is EcoSave, which allows otherwise “unbanked” people to safely put away money for emergencies. In two weeks, the tool prompted an influx of 500,000 new account openings, turning Econet subsidiary Steward Bank into the country’s largest bank by number of accounts.

“The vast majority of the population is unbanked and trapped in cash,” says Kathleen McGowan, senior policy advisor with the Washington-based U.S. Agency for International Development. “Businesses and service providers were without the critical market infrastructure required to create fee-for-service business models and develop financial products designed to help the poor withstand potentially ruinous financial shocks such as crop destruction.”

 

If successful, could Zimbabwe’s EcoCash overtake Kenya’s M-Pesa — which, with a four-year head start has signed up two-thirds of the adult population in that country – as the world’s gold standard for wireless financial services? It’s unclear.

“Rather than a universal model, EcoCash is specific to Zimbabwe,” says Michael Fuchs, a finance and development specialist who spent years in Africa working for the World Bank. “It represents a market solution to managing demand for cash balances due to dollarisation.”

USAID’s McGowan was also unconvinced. “Fully replacing cash is highly aspirational,”she says, “and hasn’t been achieved even by countries like Singapore and Malaysia, which have pursued national strategies for several years.”

 

Nonetheless, EcoCash must continue to build confidence in its digital payment system.

“Customers need to be assured that money stored on their phones electronically is truly liquid and will retain its value,” says Brookings’ Chandy. “If customers get spooked, they may intuitively run back to physical cash.”

 

Source: IT News Africa