Every year, developing countries lose an estimated $10 billion of potential revenues because digital imports are exempted from customs duties, a new study has found. As a result, the World Trade Organisation (WTO) will have to revisit a 22-year-old moratorium which bans countries from applying customs duties on electronic transmissions. The study, titled Moratorium on Electronic Transmissions: Fiscal Implications and Way Forward, was conducted by the United Nations Conference Trade and Development (UNCTAD) researchers. Electronic transmissions (ET) are, in the simplest of terms, digital deliveries. They can also include all business services which are electronically traded - streaming services, TV subscriptions, online consultancy and digital advertising, among others. But this field extends to software, all sound recordings and audiovisuals, literary works, video games, and printed matter (from 3D printing). Unforeseen technology evolution The unprecedented digital revolution has forced consumers to abandon CDs and DVDs. Paperbacks became e-books and video games are now played online. This, according to the study, led to a sizeable decline in importation of physical, hence taxable luxury goods. In 1998 when e-commerce was very nascent (Amazon was only 3-years old), WTO gazetted a moratorium which let digitalized products escape customs duties upon importation. By then, only a couple of countries had the capacity to collect customs duties on intangible imports, says Rashmi Banga, Senior Economic Affairs Officer at UNCTAD and a research team member. Sub-Saharan Africa loses $2.6 billion While revenues of digital players have grown steadily down the road, their growth came at the expense of government revenues, according to the paper. For instance, Sub-Saharan Africa loses an estimated $2.6 billion per annum in tariff revenues and the least developed countries $1.5 billion. Potential losses in Sub-Saharan Africa are ten times more than in high-income countries, the researchers noted. The study conservatively estimates that $139 billion or 55 per cent of all global physical imports of digitizable products were delivered online in 2017. In the same period, Rwandas online shipment amounted to $560 million. Without the WTO moratorium, developing countries could have earned $10 billion of tariff revenue. Should ET continue to be exempted from customs duties? There is a literal and fiscal debate ahead of the 12th WTO Ministerial Conference in 2021 where a decision on continuing with the moratorium or not will be taken; or whether its scope will be revised. However, the research advises developing countries to support the removal of the moratorium. By this, the governments can preserve their own policy space for regulating online imports. This would also provide a level playing field for the growth of budding digital industries like 3D printing. In addition, without the moratorium, the countries would generate forty times more tariff revenue every year compared with developed countries by imposing customs duties on ET. Experts view While digital economy experts are of mixed views, creation of space for innovation is a bottom line. The problem is not taxes because people can find ways to play around them, says Jean-Bosco Ahorukomeye, lecturer at Zigurat Innovation and Technology Business School at the University of Barcelona, Spain. The real problem is that the moratorium is killing our local industries, local purchasing power, and further, our employment. He added that, for instance, local media houses and advert companies are struggling because Google and Facebook have gulped nearly half of the whole advert market. The tech giants assume 41 percent of global advertising revenues. Désiré Nzengou, senior industrial technology advisor at National Industrial Research and Development Agency (NIRDA), says that we wont gain much by just taxing WhatsApp or other online platforms. However, he presumes Rwanda would gain more by following global trends when it comes to digital solutions. With that, the versatile tech professional sees that the move would allow countries to establish innovation policies that would propel the mainstream use of emerging technologies.
