THE NEED TO REVISIT TAXATION OF DIGITAL BUSINESS INCOME UNDER ETHIOPIAN TAX LAW: AN EMPHASIS ON INCOME DERIVED FROM SOCIAL MEDIA AND BLOG BUSINESSES

Abstract

Digital marketing in general and social media and blogging businesses, in particular, are thriving and becoming the major source of public revenue around the globe. But the digital world has become one of the challenges of taxation and tax law administration. On the other hand, many countries face less revenue, excessive public expenditure, and high financial constraints. In this respect, Ethiopia is advocating and working to diversify the source of taxation to increase public revenue. Hence, a clear, effective, and well-designed regulatory mechanism should be implemented to succeed in the plan. According to Ethio-Telecom, there are more than 22 million internet subscribers in Ethiopia. And this year, Ethio-Telecom has made a total profit of 47.7 billion birr, where 13 billion was from the internet and data. Accordingly, the study focused on digital marketing, specifically social media and blog businesses, since the business sector has grown fast and needs effective regulatory measures to enhance the country's revenue and diversify the source of taxation. YouTube channels, blogs, and other digital platforms based in Ethiopia are making millions and getting paid based on the number of views and visitors, but they have never paid tax for the income they generated. Ethiopia's Income tax proclamation No. 979/2016 incorporated all taxable incomes to be governed under the ambit of the proclamation. Yet, it is inadequate and needs to be redesigned to address the contemporary tax issues of digital businesses. For the study's central question, the paper identified the status of the Ethiopian Income Tax proclamation vis a vis social media and blog businesses by exploring legal documents, related literature, international experiences, and conducting relevant interviews. Accordingly, the study concludes that the proclamation is too remote to regulate social media and blogging businesses. Like any other business activity, digital businesses are expected to be treated under Schedule C of the proclamation. But this schedule was designed to regulate traditional business activities; thus, it is inadequate to apply to a unique digital business type. On the other hand, Art. 63 of the proclamation is incorporated to address all taxable incomes that are not governed by the existing schedules or other provisions of the proclamation. However, it is still challenging to regulate digital business activities under Art.63 because this provision applies a 15% flat-rate tax, which basically defeats the fundamental principles of taxation. Therefore, the proclamation is inadequate to govern and regulate digital businesses like Social media and Blog Businesses. Hence, Schedule C of the proclamation shall be amended by examining other countries' experiences and incorporating the principles of digital taxation or crafting sui generis law alternatively, where amendment is impossible for different reasons. But a sui generis law shall include all sorts of fundamental taxation principles and give due attention to lower tax rates since digital business is new and growing in Ethiopia.