TechCabal Daily – Kenya is planning digital taxes that could provoke a trade war with the US

The Central Bank of Nigeria is not joking regarding loans. Since July, the banking regulator has asked banks to increase their loans to deposit ratio (LDR) from 59% to at least 65% by December 31, 2019. The plan is to get banks to loan more to stimulate the economy. Failure to meet the target will lead to a penalty.

The threat appears to be working, at least for increased lending. Between May and October, bank credit grew by N1.1 trillion ($3.04 billion). With N459.7 billion ($1.3 billion), the biggest growth came from the manufacturing sector. But the growth we’re most curious about is in consumer loans.

Banks are usually scared of providing consumer loans because the risks are too high. So fintech startups like Carbon, FairMoney and others emerged. They absorbed the risk by adopting relatively higher interest rates than banks and using proprietary technologies to build out credit information about their borrowers. Now, because of the CBN’s LDR policy, banks are getting back into the consumer loans business. Between May and October, consumer loans grew by N356.6 billion ($984 million). Banks have the advantage of lower interest rates on loans, but fintechs have the technology advantage.

With the December LDR deadline around the corner, the CBN is now reportedly considering raising the target from 65% to 70%. If that policy kicks in next year, banks have two choices again: reject customer deposits or lend more. No bank will want to reject deposits, so they will need to lend more. To lend more banks will either have to work with fintech startups and leverage their technologies or compete against them by building and promoting rival products. In this article from November, I explained that this is the battle between banks and fintechs.

Do you like graphs? Here’s one from the good folks at Bloomberg.

Last year, Uganda thought it was a great idea to introduce taxes on social media as a way to raise revenue. The government requires citizens to pay 200 Ugandan Shilling ($0.05) per day to access services like Facebook, WhatsApp, Twitter and 57 other services. That turned out to be a bad move. Statistically, the country’s internet population dropped 30% between March 2018 and September 2018. In turn, the government lost 400 billion Ugandan Shillings ($108 million) in taxes. Many believe that the miscalculated game plan was actually politically motivated and designed to block online dissent against the over 30 years rule of President Yoweri Museveni.

We’ve paid attention as governments globally have intensified plans to change how digital businesses are taxed. Governments want to be able to tax businesses like Facebook and Google that are making money from their citizens by providing digital services. Countries want to tax businesses as long as they make money from citizens in that country. Unlike physical goods which are easy to tax, digital services fly across borders and are difficult to tax. International tax rules have also not seen major changes for decades, so there is no global consensus on how to tax digital businesses.

A few countries like the UK, Egypt and France, have gone unilateral to impose their own taxes. But many of the services and servers powering the global digital economy are from the US. In essence, any country that unilaterally imposes taxes on digital services like Facebook and Google is invariably setting itself up for a trade dispute with the US. Under President Donald Trump who is focused on “America first”, the chances of disputes are higher. Like China, the EU, and even Rwanda (for used clothes sales) have witnessed, the US will retaliate if it thinks an issue is not favouring its citizens or businesses.

This is the situation Kenya is weighing at the moment. Last month, the government signed a Finance Act that would give it the right to impose taxes on the income of digital platforms. In this article for The Conversation, Mercy Muendo explains that Kenya might trigger a trade war with the US if it goes ahead and imposes a digital tax.

80 days ago, the Jollof Road gang hit the road to do something audacious: tour 14 West African countries. Gradually they made their way around the region, exploring the culture, the food, the infrastructure and the currency of the different countries. It was an adventure worth sharing, and they did exactly that on the Jollof Road website.

Head over there to find all the journal entries, documentaries, images and short videos from the trip. Here’s the latest journal entry from day 80, the last day of the adventure.

Bike hailing companies continue to face significant challenges trying to operate effectively in Lagos, Nigeria’s most important city. We’ve already done serious coverage on how government regulation and challenges from transport unions have affected how these startups operate. But in the latest twist, the police is now a major headache for these startups. Over the last couple of weeks, it has clamped down on their operations and impounded dozens of bikes. In this article, Kay Ugwuede spoke with the Lagos police spokesman, Bala Elkana, who said the police is simply impounding bikes that “break traffic laws”. That’s a vague statement since bike hailing startups already operate under a regulatory grey area.