As already mentioned in an earlier article, YouTube is now going to be collecting taxes from YouTube creators who live outside the United States. Depending on how much revenue a YouTuber is making in the United States this can lead to quite a dent in earnings.
So what is the rationale for this new change? Well according to YouTube and the IRS (the US’s version of ZIMRA) earnings made by YouTubers are now being classified as royalties. The US government feels that since these YouTubers are making billions each year off American citizens it’s only fair that these YouTubers pay taxes for essentially operating in the United States.
Sounds familiar? It’s the same nonsense that is peddled by countries like Zimbabwe under our current Finance Minister. South African companies like Multichoice who are struggling to compete against Netflix and other giants feel the same way too. Even some people in the EU and Australia have advocated for something along these lines.
Zimbabwe has actually gone beyond advocating. The government has already taken some tentative steps in making this whole “tax internet giants” thing a reality. Facebook and Netflix are already started charging Zimbabweans Value Added Tax which they happily remit back to the Zimbabwean government where it is squandered by our beloved country’s corrupt machinery.
On the surface, it all seems like a good thing. These giants are making money by charging Zimbabweans for various services such as streaming services for Netflix and ads for Facebook. It’s as if they have set up shop in Zimbabwe without having actually set foot in here. Local businesses (hopefully) pay taxes so why shouldn’t these foreign entities do the same? It’s only fair!
The folly of it all
You don’t even have to dig hard before things start to go awry. For Zimbabwe, the problem lies in the fact that it’s a small country. Having a population of 15 million people really doesn’t give you much leverage when the bulk of those people are just plain poor. How many Zimbabweans actually buy ads on Facebook? How many people here actually pay for Netflix? How much revenue are these countries really making from off Zimbabweans?
The truth is probably not much. Neither Facebook nor Netflix publishes data on this. I would be very suprised if Netflix is making US$100 000 from Zimbabweans. Facebook would be lucky to make half that much. For the most part we are just free riders. These companies don’t mind providing us with services because it currently probably doesn’t cost them that much to do so. They just flip a switch and couple of Zimbabweans start streaming.
When all things are considered the revenue they make here isn’t that much in the grand scheme of things. This means that the Zimbabwean government doesn’t have much to work with when it comes to leverage. This almost certainly explains why the best deal they could get involved us, Zimbabweans simply being asked to pay more when we sign up for Facebook and Netflix.
Facebook and Netflix are not really being taxed at all! We the people are just being asked to pay extra money. Sure local companies like Multichoice would be happy with such a setup as it makes Netflix slightly more expensive and thus less competitive but, to be honest, it will probably not matter much as those who want Netflix will just stick with it. Nobody is going to go back to DStv because they are now being asked to pay $3 more dollars.
Digging deeper doesn’t help
Remember the argument that this taxing of foreign companies will result in more revenue for the government? It’s only true if these countries do not start retaliating the same way. In fact, when reciprocating measures are put in place Zimbabwe will be worse off than it currently is! The way YouTube is now going to be operating is an indication of what reciprocation looks like.
Taxation is a complicated field and in my blog post elsewhere I explain how it all works regarding the new rules vis a vis Zimbabwe. The long and short of it is that when the countries from which these tech companies are located also start charging taxes on revenue made in their countries the same way Mthuli Ncube has been harping about and actually doing, Zimbabwe stands to lose more than it gains. Like a whole lot more.
As already pointed out, these tech companies make very little revenue from Zimbabwe. In contrast, everybody who uses Adsense knows that US viewers bring in more money compared to say Zimbabwean viewers. If that US generated income is taxed it means that money doesn’t go to ZIMRA and stays in the United States.
Again it’s all complicated but in simple terms, the rules say you only pay taxes once. If you pay taxes in the US it’s not fair for you to be asked to pay taxes here in Zimbabwe, right? To make sure that doesn’t happen whatever you pay in the US will be deducted from what you were supposed to pay in Zimbabwe had you not paid tax in the US. Confused? Just know this means less revenue for the Zimbabwean government.
A tangled mess
This is Zimbabwe and the US in the ring right now but things are bound to get worse when every country gets into that ring and starts to demand taxes from revenues generated in their countries. If everyone gets in there it’s over 200 competing tax codes. No one will win in that setup least of all a greedy little mangy country called Zimbabwe. A country whose leaders just wanted to consume anything and everything.
The YouTube tax episode is very revealing. It betrays the superficial thought process that goes into crafting policies in Zimbabwe. They just appear rushed with very little forethought.
Share
Home
13 comments
Your article is too emotional.
Very interesting. But IRS cannot be equated to ZIMRA because the former deals exclusively with US internal (domestic) taxes only while ZIMRA deals with domestic taxes and Customs and Excise. ZIMRA has two divisions under it (Domestic Taxes and Customs and Excise). In US, Customs is handled by US Customs and Border Protection.
I feel like your attacks are a bit much and though yes the government warrants it, they sort of undermine basic tax principles. As you also made an assumption I also would want to say that Mthuli starting to tax surely did not lead to IRS wanting to tax too. The advent of the internet has made tax collection difficult for every government(regardless of whether good or bad)
Of course not! I don’t even imply that Mthuli’s tax prompted this at all. Although I must point out this might be a preemptive strike from the US govt against various governments which I do mention which are in favour of taxing income made by tech companies in their countries including the EU and Australia (this one is already in the process of crafting the law which does this).
Also I feel the need to reiterate that there is nothing basic about tax principles especially when they transcend borders. Tax is complicated in today’s world. Believe me on that.
Zimbabwe is not the only country claiming taxes from YouTube, Netflix and others. The article poorly mixes biases against government, with how taxation works, combined with an incoherent emotional stutter.
Tax is generally on the income or expenditure of citizens. You can be based in Zimbabwe and make hundreds of dollars on YouTube monthly, that income is what they also want to tax collect (not just Netflix payments). The tax has always been due on such income, it is the collection that is difficult and that they are addressing.
Revenue is generally built from an accumulation of small amounts. Those “small” taxes accumulate to create a final larger revenue amount. In the same way Netflix wants those few dollars from Zim, if they get *just* $100,000 from 10 3rd world countries, that’s $1M in a first world corporates pocket. Who’s the greedy one there?
1. Just because it’s not only Zimbabwe doesn’t make it a good idea.
2. I do have Tax training and to give you a bit of insight into some of the complex ideas explained here I draw your attention to calculations done here https://zimpricecheck.com/analysis-and-opinion/doing-the-math-this-is-how-new-youtube-tax-rules-will-affect-zimbabweans/
3. Now let me attempt to restate the main idea expressed here:
a) Tax is not levied on income as you claim. It’s a common misconception. Tax is instead levied on “Taxable Income”
b) Sometimes two countries can claim the same Taxable income and when that happens we have a concept known as Double Taxation and sometimes Tax Treaties to deal with that.
c) Because the govt of Zimbabwe has little production of Taxable income coming directly out of Zimbabwe
when every country implements Mthuli Ncube’s tax idealogy we stand to lose more than we gain.
d) The US case is an example. The IRS has an advantage as the income is being made in their country, literally. They have access to the funds and can deduct tax beforehand. Zimbabwe cannot do that because like everything else the money is abroad. When it does eventually come to Zimbabwe the country can no longer deduct full tax again. That will simply kill business and create more problems.
very articulate, tax is a monster that chases away potential cash inflows into a country.
1. You premise the Zimbabwe taxation policy to be based on greed rather than any other taxation principles/policy. The point was not that we should copy them, but that other non-greedy countries are implementing it too.
2. You can be trained on something, that doesn’t make you an expert or more knowledgeable than anyone else who hasn’t been trained. Mthuli is also trained in economics and tax is he not?
3. a) You are just nit picking, it doesn’t fundamentally change anything that I said. The YouTube/Netflix income is taxable income to the government.
b) That is not the case here. You are reaching for straws.
c) It is not “Mthuli’s idealogy”. It is practice an number of countries have implemented way before Zimbabwe. From your training you ought to be aware of this.
d) Hence the implementation of the policy to get YouTube to deduct and remit on their behalf. What business will it kill? There always those who rush to make grand claims that the “boogieman” is going to get you. So, “kill business”, which businesses? Be specific and be realistic. If your business will shutdown based this policy, I wouldn’t call it a business in my opinion.
Ironically, when YouTube wants to tax Zim content creators for content consumed in the US (from another TechZim article) it is all good. Apparently, tax only matters if it is the Zimbabwean government, thus your objectivity is lost in your anti-goverment sentiments.
I also agree with you and the points you raised before when Mthuli brought in FB and Netflix it was just fixing an issue on collection of VAT that was not possible before because I wouldn’t willingly remit the tax to ZIMRA as was the case
This statement, “The tax has always been due on such income, it is the collection that is difficult and that they are addressing.” speaks a lot of volumes.
Also, issues surrounding the issue of source have to be addressed. Generally, if income is not from a Zimbabwean source it is not taxable in Zim(unless it is deemed to be by another provision).
“Tax is complicated in today’s world. Believe me on that.”
Yes this is true esp with the internet age, but the core principles do not change
Tax is due on foreign earned income, if the work done to make that income was done locally, even from the comfort of your own house on a computer you bought by yourself.
1. It’s greed. Revenue shouldn’t just be collected for the sake of collecting revenue. Revenue from tax should be transparently spent with accountability being the order of the day. Here opaqueness rules and potbellied officials dip into the fund. A conflation of state, party and PEPs
2. As already pointed out in the linked article which was peer reviewed. Tax is complicated something you seem to be wilfully ingoring. Your simplistic arguments continue to ignore that important fact.
3. The principle of Double Taxation always takes precedence when two domains want to tax the same tax. Taxation is just as political as it is a legal matter. I strongly suspect one reason you are failing to understand my assertions is because you’re looking at legislation only. There is also Case Law to consider. There are lots of cases underlying those arguments. The claim that Netflix’s income is taxable by Mthuli doesn’t make it so. The courts will probably have to decide at some point. In anycase my main argument is this: Mthuli Ncube will lose more if his counterparts start doing what he is doing. It’s not nitpicking, it’s a fact.
1. Your emotions cloud your reasoning. The discussion is tax collection, not government expenditure or envisioned corruption.
2. Your training can be ignored because it has not made any positive contribution here. Get this article peer reviewed, if you are confident in your ramblings.
3. Again, that is not the case here and no such challenge has been made against the taxation policy, it’s just another of your hypothetical boogie men.
What a rant.
Hopefully, one day, Techzim returns to a time of facts over unbridled emotion and rage.