Abstract
The introduction of digital service tax has ignited heated debates around the globe. This study embarks on the review of digital service taxes implemented in selected developed and developing countries, mainly Spain, Turkey, Kenya, and India. This study also reviews the OECD’s proposed Pillar One approach to taxing the digital economy. Through a critical literature review and applying a qualitative approach, this study highlights the challenges posed by digital services tax. South Africa is among a number of developing countries in Africa that have not implemented direct digital service taxes. This study further seeks to identify lessons to be learned by South Africa from countries that have introduced DSTs by investigating DST implications in South Africa.
The findings of this study reveal that digital service taxes pose significant challenges not only to multinational businesses but also to tax administrators and users of digital services. Digital service taxes are criticised for being in contravention of international tax rules, discriminating against American-based digital multinationals and exposing taxpayers to double taxation. Despite the challenges, digital service taxes enable countries to tax digital businesses that operate in their jurisdiction without physical presence. The findings also demonstrate that the OECD’s proposed Pillar One approach seeks to mitigate the challenges of taxing the digital economy. This study concludes that unlike digital service taxes, the OECD’s Pillar One approach signals a harmonised global consensus between countries to taxing the digital economy.
Keywords: digital economy, digital service tax, digital presence, unilateral measures, OECD Pillar One, permanent establishment, nexus, direct tax, profit allocation, value creation