Online Services
In early November, the Parliament of Tajikistan adopted amendments to the Tax Code, according to which various global online corporate giants, such as Google, Apple, Microsoft, Facebook and others providing paid services in the country, must pay the Value Added Tax (VAT) to the Tajik budget. In CABAR.asia interviews, the digital market experts say the measures could destroy the internal online services market.
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Speaking in Parliament, Finance Minister Faiziddin Kahhorzoda said amendments on imposing taxes on foreign companies providing digital services in Tajikistan would be introduced in a separate chapter of the Tax Code. The Minister stressed that according to Article 193 Paragraph 1 of the Tax Code, foreign individuals providing digital services to individuals in Tajikistan directly or through intermediaries are recognized as taxpayers.
“In addition, according to Article 193 Paragraph 2, a foreign individual must submit an online application to the authorized state body and register as a VAT payer no later than 20 days from the date of the beginning of the digital services provision in the Republic of Tajikistan,” the official website of the Parliament quotes the Minister.
According to him, Article 193 Paragraph 5 explains the taxable types of digital services and lists 16 cases based on international experience.
According to the Minister, the introduced amendments will contribute to the further improvement of the tax legislation of Tajikistan and increase revenues to the state budget.
In 2017, the Chairman of the Tax Committee Nusratullo Davlatzoda addressed the government with a proposal to tax a number of popular global online services, including Google, Apple, Microsoft and Facebook.
Davlatzoda noted that the Internet is used not only to provide information, but also a number of paid services. These include the sales of games, movies, books, music, air tickets, hotels, housing, and travel programs. Mainly foreign companies provide such services, but, due to ‘imperfect legislation’, they do not register with the tax authorities and do not pay taxes.
Experience of Russia and Uzbekistan
Russia was one of the first post-Soviet countries to impose a tax (known as the “Google tax”) on large online companies. This type of tax is in effect in this country since 2017.
At the end of 2019, the Federal Tax Service of Russia reported that in the three years since the introduction of this tax, the country’s budget would receive about 82 billion rubles ($1.02 billion). Currently, the same tax is introduced in Belarus and Uzbekistan.
In Uzbekistan, the amended version of the Tax Code introduced on January 1, 2020 includes a separate Chapter 39 that defines the taxation on income of foreign legal entities providing digital services in Uzbekistan.
Currently, there is no exact information about the funds received by Uzbekistan from this tax, but in April 2020, the press service of the State Tax Committee of the Republic of Uzbekistan told the media that Google Commerce paid the Uzbek government €85 thousand of VAT during the first quarter of this year.
Last summer, Kazakhstan also decided to tax foreign online companies. The decision came into force on January 1, 2021.
The amendments to the tax legislation of the Republic of Kazakhstan suggest that starting from January 1, 2021, foreign online companies will be required to pay VAT. The new tax will not affect goods’ sales online, but will be imposed on, for example, the purchase of e-games and e-books, as well as online advertising and domain names purchase.
Introducing these amendments, the Kazakh tax authorities plan to replenish the budget by about 2 billion tenge ($4.6 million).
Violators Will Be Fined
An anonymous representative of the Tax Committee of Tajikistan told CABAR.asia that if the Tax Code were amended, the foreign companies providing digital services would register with the tax authorities in the taxpayer’s personal account. These services primarily include paid online games, audio and text e-books, and advertisements on the platforms of e-service providers. The source said that these companies would pay VAT – an indirect tax on the supply of services. The companies will also have to pay to place their ads on online platforms.
“Thus, the company providing e-service will have to include VAT in the service price and pay it to the budget of Tajikistan,” the source explained to CABAR.asia.
According to the tax officer, it does not matter where the seller providing e-services is, but it is important that the customers pay tax at the place of purchase.
He added that the amendments would not affect the work of stores selling goods online, as they sell products, for which VAT is paid when they are transported via the customs points.
Our source said that in case of non-compliance with the law, these companies would be subject to administrative fines and restrictions on the right to provide services.
“Everything that can be downloaded online for free will not be taxed. Only paid services will be taxed,” he explained.
The Tax Committee’s representative did not specify the volumes of the digital services market in Tajikistan.
Experts Doubt the Amendments’ Effectiveness
According to Muhammadi Ibodulloev, the Head of the Civic Internet Policy Initiative NGO, the proposed amendments could create problems in using digital services and purchasing goods online.
“Currently, online technologies facilitate many areas of activity. Therefore, any restrictions in this area will affect other areas,” Ibodulloev said.
According to him, the Tajik consumers will be limited in obtaining services such as purchasing software, antivirus software and e-books, in taking international exams online or distance education.
In case the consumers lose access to these services, they will not be able to maintain their equipment or will lose access to demanded information.
Ibodullev also doubts the economic effectiveness of these amendments.
“A question arises: what will the government gain from the adoption of these amendments? It will take a lot of time and effort to manage such a tax. Even if it brings financial benefit in the near future, the damage to the country’s development is possible in the long term,” Ibodulloev said.
Other experts also paid attention to the fact that the Tajik citizens will actually pay VAT.
The Advertising Market Will Be Affected
Another expert on information and communication technologies Asomiddin Atoev believes that the implementation of this project may create problems for the development of the country’s advertising market.
“This project will significantly affect the internal online advertising market. The amounts that the tax authorities are expecting to receive from the taxation of e-service companies are unrealistic,” Atoev said.
The expert underlined that the Tajik market is not very attractive for large e-service companies such as Google, Microsoft and Facebook, and they will not make much effort to keep working in Tajikistan.
“On the contrary, we need e-service companies. This will allow us to develop internal online content faster,” Atoev said.
Asomiddin Atoev considers it wrong to follow the example of Russia and other countries, where VAT was imposed on the e-services.
“The online market is more developed in those countries, so such comparisons are illogical,” Atoev said.
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with financial support from the Norwegian Foreign Ministry. The opinions expressed in the article do not reflect the position of the editorial or donor.