• Place of Supply

In some African countries, the VAT legislation on how to ascertain the place of supply is not clearly articulated. For example, Kabwe and van Zyl (2021) posit that South Africa's new expanded rules have increased the interpretation conundrum of the use and consumption principle in establishing the place of supply. The place of supply definition remains unclear and not definitive. Furthermore, the researchers state that the all-inclusive definition given by the VAT Act does not differentiate between B2B and B2C, yet the OECD calls for a clear distinction between the two in both explication and treatment. Most African countries employ and lean on the destination principle as the rationale to impose VAT, implying the taxation of an economic activity is dependent on where the service is consumed and used. Despite the destination principle seeming to be clear, it is generally complicated for revenue authorities to determine that a supply of services happened within their country. Therefore, ascertaining the place of supply is pivotal to the administration and enforcement of VAT legislation on digital services. There are times where it is easy to employ the use and consumption principle to identify the place of supply and instances where the place of supply cannot be easily identified, meaning proxies must be applied. The problem is that the VAT legislation does not articulate possible proxies or alternative rules for identifying the place of supply if the use and consumption principle is inadequate in addressing the situation. Citing Rooi (2015), Kabwe and van Zyl (2021, p. 508) portend that "if the place of supply is unidentifiable, then it becomes impractical, ineffective and inefficient to implement the relevant legislation". In South Africa, the link between enterprise and place of supply also poses challenges. Though broad and encompassing even foreign companies that supply services to South Africa on a regular basis (deemed to be carrying on an enterprise), the problem arises where the provider of digital services cannot be linked to any physical presence in the world but conducts his business activities in the cloud (Kabwe and van Zyl 2021). Therefore, with the absence of transparent and decisive 'place of supply' provisions, it is challenging to assign the transaction to a particular sovereignty, and to require them to account for VAT.

#### 3.4.3. Complexity of Some of the Provision of the VAT Legislation

The complexity of tax legislation has a negative influence on tax administration, enforcement, and compliance (Liganya 2020; Mpofu 2021a). The TaxWatch (2021) points to a lack of simplified registration rules affecting VAT compliance in Nigeria. The report further alludes to difficulties for digital suppliers with no physical presence to comply with VAT regulations, as they might not be keen to register for VAT. The report also points out that in Senegal, the challenge is that the country has no system in place for digital services suppliers to remotely register for VAT in Senegal while they are in their foreign domiciles. In Tanzania, Liganya (2020) also alludes to the complexity of tax legislation, coupled with the lack of awareness as well as the lack of clarity in the legal and regulatory framework for taxing the digital economy. Therefore, there is a need for a simplified registration and compliance regime for foreign companies to register and collect VAT at a rate equal to the rate used for domestic companies. In South Africa, Kabwe and van Zyl (2021), raise the issue of residency, which is used as proxy in the determination of whether the transaction was supplied to South Africa and hence liable for VAT, where the place of supply rules are not sufficient or distinctive enough to support the taxing of the transaction. The researchers argue that while the VAT Act provides three conditions for deemed residency determination, it is not clear on who is responsible for establishing the residence of the person receiving electronic services. These conditions include the residence of recipient in South Africa, payment of the transaction originating in South Africa and the business address or residential address of the customer being in South Africa) (Van Zyl 2014; Van Zyl and Schulze 2014). It is as if the foreign company is saddled with this responsibility. This seemingly brings unwarranted administrative responsibility on foreign companies. This complexity seems to contradict OECD guidelines that encourage clarity and simplicity in the construction of tax rules to allow for easy comprehension of the provisions of the Act, how to account for a transaction, when and how to do so as well as the likely consequences of not complying. The adequacy and accuracy of the three conditions in determining residency remains debatable. Many questions arise regarding scenarios where the foreign company fails to identify all the three conditions provided by the Act. The conditions or proxies are much wider in developed country legislation, such as that of Australia. These include the recipient's bank address, the recipient's billing address, the recipient's IP address, the user's fixed land line via which the service in question was provided with and other additional commercially applicable information (Kabwe and van Zyl 2021). Perhaps African countries can assess some of these proxies and their relevance to their contexts to tighten the legislative provisions to minimize disputes and ambiguities.

#### 3.4.4. Registration

There are different provisions in the African countries referring to who must register for VAT. For example, in Zimbabwe, the Act refers to a registered operator who must levy and collect tax on goods and services supplied in the furtherance of trade, and in South Africa, a vendor must charge and collect VAT on goods and services supplied by a vendor in furtherance of his enterprise. There is sometimes confusion on who has the ultimate responsibility to register for VAT. In some instances, the responsibility falls on the foreign entity and in some cases the local customer or user of services (reverse charge mechanism).

#### 3.4.5. Administration, Monitoring and Enforcement Challenges

These are divided into administrative challenges and monitoring and enforcement challenges for easier discussion.

• Administrative Constraints

According to Rukundo (2020) and Sigadah (2018), administrative constraints should never be overlooked. Despite the VAT legislation provisions, online advertising companies are not complying. The researchers further allude to the fact that African revenue authorities are resource repressed, face capacity challenges and have feeble legal and administrative frameworks. The countries also face problems in accessing data and enforcing legal tax obligations on foreign companies (Mpofu 2021b; Sebele-Mpofu et al. 2021a). For example, according to The TaxWatch (2021), Kabwe and van Zyl (2021) and Bunn et al. (2020), despite African countries having put in place and announced the legislative conditions for digital MNEs to register for VAT, no notice has been taken of these. Political power imbalances are also at play causing administrative and compliance challenges. The TaxWatch (2021) point out the discriminatory treatment of the African continent, which could be linked to the absence of an opportunity to offset input tax against output tax. For example, VAT collected by Google in the UK is offset against input VAT charges for purchases of taxable supplies from the UK. VAT-free sales become preferable for digital MNEs when dealing with African countries, as they reduce the cost to users or customers, thus increasing sales. The segregated treatment is even evident on different African countries. For example, Google charged VAT for South African accounts, while for other African countries, they argued that the consumers in these other countries should self -assess to pay VAT through reverse charge method (TaxWatch 2021). With respect to Facebook, African countries with Facebook invoices that are inclusive of VAT include South Africa, Cameroon, and Zimbabwe. Cameroon and Zimbabwe invoices started reflecting the VAT charges recently.

MNEs tend to argue that African countries' legislation on VAT is not clear; this is despite the African countries having put the regulations in place, the policy briefs that are released by large Accountancy firms (such as Deloitte, KPMG, and Price Waterhouse Coopers (PWC)) and other development bodies on recent development in legislation in Africa. The lack of clarity in legislation concerns might hold water to some extent, but to a greater extent, political and trade power imbalances (near monopoly) could be the main reason for non-compliance.

• Monitoring and Enforcement Challenges

The lack of clarity in VAT legislation aiming to tax the digital economy is a concern in African countries. In Tanzania, Liganya (2020) alludes to the fact that legislation outlining how e-commerce transactions should be taxed is not clear. With specific reference to South Africa, Kabwe and van Zyl (2021, p. 516) raise thought-provoking concerns portending "Currently, there are no provisions in the VAT Act that enable SARs to monitor the compliance of foreign businesses. Moreover, there are currently no provisions in place within the VAT Act that impose penalties on foreign suppliers of "electronic services" in event of non-compliance". The other African countries are no exception to this. Ngeno (2020) and Kapkai et al. (2021) allude to enforcement challenges in Kenya. Even though the noncompliance penalties and interest thereon applicable to VAT defaulters in general is applicable, the Commissioner generally is not granted additional extra-jurisdictional power to collect unpaid taxes and accompanying penalties as well as interest. With no information exchange treaties and multilateral treaties in place, extra-territorial enforcement of VAT legislation becomes difficult if not impracticable. While Tax Commissioner Generals in African countries with VAT legislation on digital services are theoretically empowered to impose penalties for failure to register for VAT on foreign companies supplying digital services in African countries, the practicality of enforcing these penalties remains doubtful. According to Kabwe and van Zyl (2021) under these circumstances, the only reason that could compel foreign companies to comply with VAT legislation on digital services is the need to protect their names and avoid reputational damages for failure to comply. This is not something that African revenue authorities can rely on to foster compliance. It is something that they have no control over.
