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Adopt pro-innovation tax policies
The digital boom in Africa has made digital services an attractive and easy source of tax revenue for governments. Many African countries are considering new ways of taxing the fast-growing digital economy to compensate for the revenue dip. South Africa, Kenya, Uganda, Nigeria, Cameroon, Algeria, and Zimbabwe have, for example, introduced digital or mobile services tax. But such aggressive tax regimes may end up discouraging innovation. Uganda implemented an "over-the-top" (OTT) services tax that required consumers to pay a daily tax of UGX200 ($0.055) to use any of more than 50 OTT mobile communi- cation apps. By 2019, the imposition of the digital tax resulted in a decline in the number of internet users, unmet revenue targets and social unrest in Uganda. Kenya also enacted a 1.5% tax on all digital services, regardless of the company’s location, and there are plans to double it in coming months. This may in the long run lead to the winding down or exiting of both local and foreign startups contributing to an unintended fiscal revenue shortfall. Meanwhile, in Cameroon, the International Monetary Fund estimates that the 0.2% mobile money tax that became effective in January 2022 may be counterproductive and hamper financial inclusion.
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