Weekly digest for 8 Oct 2021

KEY READING FOR THE WEEK

There are two main stories for this week: global tax reform and spectrum allocation in South Africa.

Global tax reform

The first story is about the deal for international tax reform brokered by the OECD. 136 countries have signed the deal, which has 2 pillars: Pillar (1)  is the re-allocation of taxation rights from home countries (i.e., where a corporation has its headquarters) to markets where they have business activities and earn profits. Pillar (2) is a global minimum tax rate of 15%.

Pillar 1 is the most significant for Africa from a digital service tax perspective because it means that African countries can tax the largest digital companies, such as Amazon and Facebook. Of course, there are caveats: these companies must have global sales above EUR 20 billion and profitability above 10%. 25% of the profit above 10% can be allocated to market jurisdictions where these companies have business activities and earn profits.

The OECD estimates that the changes to Pillar 1 will mean around USD 125 billion will be reallocated to other market jurisdictions. The majority of these re-allocated profits will surely go to a small number of countries that have relatively significant revenues for that company. Nigeria and Kenya have not signed the agreement, though it’s unclear why they are holdouts. Argentina has been a vocal opponent but mainly of the 15% tax rate (i.e., pillar 2) and not pillar 1. It seems likely that Nigeria and Kenya share the same concerns, given that their corporate tax rate is 30%.

Spectrum allocation in South Africa

The second story is the continuing saga of the allocation of high demand spectrum in South Africa. ICASA announced on the 31st of August that it was taking the allocation of emergency spectrum back at the end of November.  On the 1st of October, ICASA announced the updated schedule for the auction of HDS for the end of March 2022.  Telkom is now taking ICASA to court to stop it withdrawing the emergency spectrum, arguing that ““The removal of the temporary spectrum, while the COVID-19 National Sate of Disaster is still ongoing, would have a catastrophic impact on Telkom’s network performance”. It is hard to understand why the allocation of spectrum has to end in November when the auction is only taking place in March 2022. The CEO of Business Leadership South Africa accused ICASA of “running amok” with spectrum. It’s increasingly looking like the claim that ICASA is a threat to the economy is true and that a wholesale re-organisation of the institution is required before any progress on the spectrum file can be made. In the meantime, Nigeria has quietly announced its plans to auction 3.5GHz spectrum this December.

Other stories from around Africa
  • Uganda: MTN Uganda has announced that it will sell 20% of its shares to the public, valued at around USD 1.4 billion.
  • Gambia: Comium’s operations have been suspended for a month pending payment of overdue regulatory fees of USD 1.3 million.
  • Nigeria: The NCC has ruled that Nigerians below 18 are not allowed to own SIM cards. Another sign of regulatory madness on the continent….
  • Google: USD1 billion will be invested in Africa by Google over the next 5 years. One focus for Google will be lowering the cost of smartphone ownership by offering financing plans, such as Lipa Mdogo Mdogo through Safaricom.