As African economies accelerate their digital transitions, they face a critical paradox: while digital business models expand rapidly, the capacity to tax them remains deeply constrained. Originally designed for the analogue era, trade rules are increasingly locking in provisions that limit how countries can tax digital services, products, and platforms.

At this juncture, Karishma Banga, Alexander Beyleveld, and Martin Luther Munu explore a framework to examine how trade rules on services, electronic transmissions, and digital products shape the ability of African countries to tax their digital economies in their paper, ‘Trading away tax sovereignty? How trade rules shape taxation of the digital economy in Africa.’

Focusing on four taxation instruments—corporate income tax, value-added tax, customs duties on electronic transmissions, and Digital Services Taxes—the authors apply the framework to Kenya, Rwanda, and South Africa. The case studies reveal that trade rules not only restrict direct legal authority but also create indirect and administrative barriers in key areas ranging from data localization to source code access. These findings highlight how digital trade governance can entrench asymmetries in global taxation, undermining economic recovery and tax justice in the Global South.

We sat down with Karishma Banga, Lecturer in Digital Economy, Department of Digital Humanities, King’s College London, to shed more light on the insights and implications that their paper has for policymakers.

Sherina: Could you give us some insights into how and why you chose this area to focus on for your paper?

Karishma: Digital trade rules are increasingly being studied in the context of how they shape economic development, particularly in low- and middle-income countries. But I think one underexplored aspect is how trade rules, specifically digital trade rules, affect a country’s ability to tax its digital economy. This is especially important for developing countries where revenue generation is an important component of economic growth.

So that’s where this idea of this paper came about, and what we tried to do in this paper is to look at how trade rules and digital trade rules affect different taxation instruments, by looking at value-added tax (VAT), corporate income tax, Digital Services Taxes (DSTs), and customs duties on electronic transmissions. We tried to come up with a framework to help policymakers understand how the two concepts are linked. And call for academics to explore specific areas further.

Sherina: Okay, that sounds interesting. Your work looks at the tax dimension of digital technologies and how it impacts development policy. Could you give us a little more insight into this dimension and how the practice of taxation changed with the advent of digitalization?

Karishma: Big Tech companies have been at the forefront of this digital transformation and the shift to activities like online advertising, algorithmic trading, and data mining. It’s very important to be able to effectively tax these new digital activities to generate new revenue streams. We also see that the advent of digital and data-driven business models has heightened the risks of tax evasion and tax base erosion, with revenues from digital activities shifted to low-tax jurisdictions.

So it’s very important to look at the tax dimension of digital trade rules, which is what we do in our paper. We look at a framework of trade rules and digital taxation and look in-depth into three specific case studies— Kenya, Rwanda, and South Africa. We found that trade rules have both direct and indirect effects on a country’s ability to tax the digital economy. Directly, trade rules—especially those under GATS (General Agreement on Trade in Services)—can constrain the regulatory scope of a country to tax its digital economy through Digital Services Taxes.

Countries have taken on certain commitments pertaining to specific sectors under GATS, which can constrain the ability of a country to adopt a Digital Services Tax. It can also shape the design of the Digital Services Tax through market access commitments or national treatment commitments. Different countries have taken on commitments for sectors like computer-related services, telecommunications, or audiovisual services, which are very interlinked with the digital economy. So firstly, this has a direct effect on the regulatory scope to apply and design a DST. Of course, these decisions have to be taken on a very case-by-case basis, depending on what kind of liberalization has happened under GATS.

Another direct constraint is the [WTO] moratorium on customs duties on electronic transmissions, agreed upon in 1998. Under this, countries have agreed to put a sort of moratorium or ban on charging customs duties on electronic transmissions, including e-books, online video games, and software services. This decision gets reviewed almost every two years at the WTO ministerial conferences. So that’s also another effect of how these direct trade rules can curtail or shape the ability of a country. The next WTO Conference is in March 2026, where this decision will be reviewed again to see whether countries will continue to do that.

In terms of indirect taxation, if you think about a country like South Africa, it has made commitments on computer-related services under the GATS agreement. So, there could be a case where it is difficult for South Africa to impose or to apply a DST. For such countries that have taken these obligations in certain service sectors, data localization could be a very interesting way to force Big Tech firms to set up data centers locally in order to establish a taxable presence within domestic boundaries. So, if a company is operating within a country and it is conducting digital transactions, by forcing the company to set up a data center to store the data of the citizens within that country, you can then at least establish a taxable local presence.

There are also indirect effects in terms of how digital trade rules affect the administrative capacity of certain countries. If you have free cross-border data flows and no data localization, it is very difficult for countries or tax authorities to be able to track where the data is generated, where it is processed, and how it is being monetized. A lot of tax authorities need this user data to really understand how it is being mined and monetized; they need access to this sort of data, data-driven business models, source codes, and algorithms.

This is what we looked at in our paper: these kinds of direct and indirect effects, and then we tried to unpack them even further through the examples of African countries.

Sherina: Why did you choose those specific countries to study?

Karishma: We were very interested in looking at developing countries in general.  There’s very little literature on them and a lot of the work is focused far more on the developed country’s context. I think what also guided the choice of these countries is that Africa, as a continent, is at a very critical juncture. When we were writing this paper, you had some African countries, like Kenya and Nigeria, that were part of the Joint Statement Initiative on E-Commerce [A group of 71 WTO Members working on e-commerce]. Other countries, such as South Africa, were part of the OECD BEPS tax negotiations (an initiative to tackle tax avoidance strategies used by multinational enterprises. You also had a majority of African countries ratifying the African Continental Free Trade Agreement (ACTFtA).

These provided very interesting comparison points because these countries were involved in different stages of the negotiations and at different levels. And then, of course, for these countries, revenue generation is very important, and taxation forms an important source of revenue generation and economic growth. So all these points validated a choice for these specific case studies.

Sherina: That makes a lot of sense. You spoke about why you wanted to focus on developing countries. In your opinion, how can developing countries collectively resist or renegotiate these digital trade commitments so that it’s a little less imbalanced than it is today? Do you feel like there’s hope in multilateral initiatives on global taxation as it stands today?

Karishma: Yeah, I think that’s a very heavy question, right? I think that’s something I think we all have been grappling with as well–what is the future of multilateralism? I think my starting point would be that developing countries, as a whole block, are a very heterogeneous set that we’re looking at. Some are part of the multilateral negotiations on tax, which are part of the OECD BEPS negotiations. Some are signing bilateral free trade agreements, which have digital trade rules in them as well, so some have very ambitious free trade agreements, and you have the Association of Southeast Asian Nations (ASEAN) coming up with their own frameworks. But, there are some countries that have not joined the Joint Statement Initiative. You have Indonesia not adopting the finalized text, the US has also pulled back, and some countries that were never part of it to begin with.

I think the point around collectively negotiating something is interesting, and it comes out quite heavily through the Digital Trade Protocol (DTP) in the African Continental Free Trade Area (AfCFTA). It says that member states that are part of this [AfCFTA] cannot impose customs duties on electronic transmissions originating from another member state. And they also allow free cross-border flows of data, including personal data, electronically for digital trade activities conducted by other member states. Further, African member states can not mandate the use of data localization. There are also bans on demanding access to source code. So, in some sense, the AfCFTA liberalizes intra-African digital trade, but these rules apply to intra-African trade, not when member states are negotiating with others outside the bloc. So, for example, Kenya, which is part of the DTP, theoretically is free to impose restrictions on cross-border data flows and data localization when non-state parties are involved or when the data is not related to digital trade activities. So, for example, it could be related to social media content or something along those lines.

These countries are also allowed to pursue some of these restrictions when it is useful and necessary for legitimate public policy goals, and taxation could form one of them. These regional initiatives are quite interesting to look at, to see how they kind of map onto a country’s approach multilaterally, or plurilaterally as well.

But, I think overall, countries are facing quite a strategic choice, and it depends on how they see this going forward, whether they pursue a more coordinated multilateralism through a renewal of Digital Services Taxes, which are unilateral measures on taxation or taking a broader multilateral approach, based on a common treaty maybe under the UN, for example. While the OECD BEPS negotiations have come to a deadlock because of the pullback by the US, the UN could emerge as an alternative forum that could spur collective tax action in the digital economy.

Sherina: You mentioned the pullback from the US; how do you think that the current volatile political situation and trade tensions are likely to impact the future of tax justice?

Karishma: Yes, the US has pulled back from the international tax negotiations. I think around 138 or 140 countries were already signatories to these OECD BEPS negotiations. A lot of countries had a condition while part of this multilateral tax negotiation, which was to repeal the Digital Service Taxes. These are unilateral measures that some countries were imposing. Typically, they’re around 2% to 3% of the threshold of the revenue generated by these Big Tech firms. So, a lot of countries are using these Digital Services Taxes, which they had to forego if they were part of these negotiations.

They had made quite a bit of headway, but now they’ve come to a sort of deadlock, with very little movement happening on this. We’ve seen that Digital Services Taxes are a very sore point for the US. The UK and India were both under pressure to remove the DST as part of signing a free trade agreement with the US. I think there are lots of changes happening; the withdrawal of the US from the OECD can also be an opportunistic moment. It could be that we can align the interests of the OECD countries and OECD tax negotiations with the interests of the Global South. We can also see this as an opportunity to ensure that the kind of digital tax rules that are formed are much more for the socio-economic development of low- and middle-income countries.

There are avenues to explore, for example, the UN, whether it can build a large coalition to limit the economic disruptions and strengthen its legitimacy, and all of these alternative tax measures. So that’s one side to it.

Meanwhile, what’s happening is that several economies are going forward with this path of unilateral measures, like DSTs, and some of them have also changed their corporate income taxes to change how they define significant economic presence. So if you think about it now, Kenya and Nigeria have changed, or they’ve clarified what they mean by ‘permanent establishment’ and ‘significant economic presence’, and now in their net, they can capture the Big Tech firms as well.

But we need a lot more research on this, I think, to understand how effective these [national-level] measures are. The emerging insights from the OECD countries that have adopted DSTs seem to suggest some positive outcomes of this implementation, and that they have raised revenues in a cost-efficient way. But we need more academic evidence from the Global South to really understand how these countries have fared in terms of implementing DSTs or new ways of taxing the digital economy.

In some sense, we try to do that in our paper, where we focus on Kenya, Rwanda, and South Africa, and we calculate and compare the different estimated revenues generated these different approaches- the UN approach, OECD- BEPS approach, the DSTs, and the customs duties on electronic transmission. So we try to calculate and compare, and see which approach is doing better in terms of revenue generation. So, I think that sort of research is also needed in this moment of geopolitical crisis and trade tensions.

To reiterate the point that digital trade matters for this taxation as well. So a lot of these conversations, whether it’s geopolitical crisis and trade, or whether it’s tax, they seem to be happening in silos. What we need is actually for the negotiators of tax and trade to come together because digital trade rules- whether they are through bilateral FTAs or through multilateral or plurilateral efforts- are going to take the shape the approach of a country towards digital taxation.

Sherina: What are the sort of top-line highlights that you hope policymakers would take away when they engage with your paper?

One is that we need to be aware of the fact that tax havens are slowly becoming data havens. So in our paper, we look at how the internet server penetration has evolved over time. It’s very interesting that post-2016, with the launch of the EU’s GDPR, we see massive jumps in internet server penetration in known tax havens like, British Virgin Islands or Belize and others. So this just shows that Big Tech seems to be sort of parking their data in these tax havens. And there’s this whole sort of invisible side to the digital economy, and we need to be able to effectively identify it and regulate it. That is why rules around cross-border data flow, data localization, and source code sharing are becoming all the more important now, right, in this era of digital age, and also with the rise and advent of artificial intelligence. I think it’s even more important to talk about some of these issues. The second aspect is something that you alluded to in the beginning, that there is a very interesting political economy dimension that countries and policymakers need to be cognizant of and need to embed it within their strategies going forward.

For example, if you think about the Kenya-US free trade talks that have been going on for a while. One of the big stumbling blocks in the negotiations was the fact that Kenya had initially failed to adopt the OECD BEPS approach. It had a DST in place at that time, so it had, like, a 1.5% Digital Services Tax. The US was opposed to this imposition of Kenya’s DST as well, and it considered it to be quite discriminatory, specifically against American companies operating in Kenya. Slowly, we see that Kenya has repealed its DST, and it has gone down a very different lane, perhaps in an effort to be able to sign the FTA with the US. Of course, things have changed now, but when we were writing the paper, we saw that there are lots of these political economy considerations that need to be embedded within the approaches that policymakers take in an effort to increase tax justice in the age of digital and AI.