Retaliatory measures on DSTs

KEY READING FOR THE WEEK

Last week’s newsletter was on how much Kenya could expect from the OECD tax framework. This week’s newsletter is on what kind of retaliatory measures Kenya could expect. The 2021 version of the DST is clearly discriminatory because only non-resident firms have to pay it. The United States Trade Representative’s Office (USTR) is monitoring the Kenyan DST. The USTR has previously filed Section 301 claims against Austria, India, Italy, Spain, Turkey, and the United Kingdom. Section 301 of the U.S. Trade Act of 1974 authorizes the US President to take retaliatory action, such as increasing tariffs, against another nation because of discriminatory trade practices. In December 2019, the USTR imposed US$ 2.4 billion worth of tariffs against France in retaliation for the imposition of a 3% levy on gross revenues imposed on digital content. However, when the OECD Framework was signed in October 2021, all retaliatory actions were suspended because the OECD Framework explicitly require all parties to remove all DSTs, and to commit not to introduce such measures in the future.

Similarly, the African Tax Administration Forum warned that here could be repercussions to unilateral DSTs, such as the imposition of tariffs by countries where the multi-national firms are based. Finally, a DST may also violate a country’s non-discrimination obligations under the GATS, namely national treatment (NT) and most-favoured nation (MFN) obligations.

With all of these measures in mind, as well as the fact that the USA actually imposed retaliatory tariffs against France for a period of time, the risk of retaliatory action has to be included in the cost of the DST. Is the DST really worth risking potentially billions of dollars of trade as well as lengthy and expensive negotiations in multi-lateral forums? 

Other weekly news from around Africa

  • Zimbabwe: A fee of US$ 50 per smartphone will be imposed on all smartphone imports. With this sort of tax, there is literally no point in having a broadband policy or universal service fund.
  • Nigeria: The NCC has extended the deadline for 3.5GHz spectrum bids to the 29th of November because of the challenges of air travel into Nigeria. At least Nigeria is doing something in spectrum, while South Africa continues to dither…..
  • Namibia: MTC listed on the Namibian Stock Exchange and raised US$ 161 million compared to the US$ 191 million it was expecting.
  • Angola: Africell is manufacturing its own smartphones in the DRC. It expects to make the first batch available in February 2022 and to manufacture 500,000 by the end of 2022. This makes no sense unless the government of Angola is offering massive incentives to Africell….which defeats the point of locally manufactured smartphones because the taxpayer is ultimately paying for high priced smartphones anyway.