How Should African Governments Tax Social-Media Businesses?

A sneaker seller can operate a substantial business without renting a shop. S/he keeps the shoes at home, posts photographs on Instagram, answers customers through WhatsApp, accepts mobile money payments and uses a motorbike rider for delivery.

The business is easy for customers to find, yet difficult for the tax authority to assess.

Instagram knows that the shoes were advertised, WhatsApp carries the conversation, the mobile money provider records that money changed hands, while the rider knows that a parcel was delivered. None of them necessarily knows whether the transfer related to the shoes, how much the seller earned over the year or whether the business made a profit.

This is the real tax problem created by social media commerce. It is not simply that businesses have moved online, it is that the information needed to establish taxable income has been divided among several companies.

The usual responses do not fully address this. Requiring Instagram to report its business users may identify traders, but it will not show their sales. Examining mobile money accounts may reveal payments, but not whether they were business receipts, family remittances, refunds or loan repayments. Simplifying tax registration may help willing businesses comply, but it will not reveal those that choose to remain outside the system.

African tax authorities need a clearer principle. Before requiring a platform, bank, mobile money provider or company to report someone’s earnings, they should ask three questions: does it know who the seller is, does it know how much was paid and can it reasonably establish that the payment arose from business activity?

The answers should determine what information can be reported, how it may be used and whether it is strong enough to support a tax assessment.

The case is about fairness, not easy billions

Governments have good reason to pay attention to online commerce. Across the 38 African countries covered by the OECD’s latest revenue report, the average tax-to-GDP ratio was 16.1% in 2023, while 20 collected less than 15% of GDP in tax revenue. The ratios differ considerably between countries and the data have limitations, but the figures still show the fiscal constraints facing many governments.

Commercial activity is also becoming more dependent on mobile technology. The GSMA estimates that 416 million people in Africa use mobile internet, while mobile technologies and services contributed about US$220 billion to the continent’s economy in 2024.

Those figures do not establish how much income from Instagram, WhatsApp, TikTok or other platforms goes undeclared, nor do they prove that taxing small online sellers would generate large amounts of revenue.

The stronger argument is about equal treatment.

A shop selling clothes may pay for a commercial licence, keep records and deal regularly with the tax authority. Another trader can sell similar goods through social media, store them at home and collect payments through personal accounts, making the business much harder to identify.

The shop should not face a heavier burden merely because it is more visible. Equally, governments should not spend more pursuing very small sellers than they are likely to collect from them.

The aim should be to identify sustained commercial activity, particularly where it has grown beyond the tax and registration thresholds set by national law, without treating every person selling an old phone or receiving money from a relative as a business.

Platform reporting works only when the platform knows the transaction

Some online businesses are easier to assess because the platform organises most of the sale.

A ride-hailing app usually knows the driver, passenger, fare and commission. An accommodation platform may know the property owner, booking price and amount transferred. A formal marketplace can register sellers, record orders, process payments and deduct its charges before releasing the remaining money.

These platforms hold information that tax authorities can use.

The OECD’s model reporting rules require qualifying digital platforms to collect information about income earned by sellers providing services through them, with an optional extension covering the sale of goods. The European Union’s DAC7 framework also requires qualifying platforms to report identifying and financial information about sellers, including the amount paid or credited to them. These rules provide information for applying existing tax laws, they do not create a new tax simply because someone sold through a platform.

The United Kingdom’s implementation draws an important boundary. An application falls within the reporting system where it connects customers and sellers and knows, or can easily calculate, how much the seller was paid. A service that only advertises products, redirects customers or processes payments is generally outside the definition.

This distinction is especially relevant to social media commerce.

Instagram may know the identity of an account holder, although even that information may not always be verified to the standard required for tax reporting. It can see that products are being advertised and may know how much the account spends promoting its posts. It will usually not know whether a customer who viewed a pair of shoes later bought them through WhatsApp, paid in cash or abandoned the purchase.

Asking Instagram to report the seller’s income would therefore require it to provide information it does not possess.

Commercial posts can still help a tax authority identify a possible business. Repeated advertisements, delivery information and a large catalogue of products may justify further enquiries, but they are evidence of activity, not proof of turnover or profit.

A practical test for digital reporting

A useful reporting system should distinguish between three levels of knowledge.

Where one company knows the seller’s identity, the amount paid and the commercial reason for the payment, it can provide reliable third-party information. Formal marketplaces and ride-hailing platforms often fall into this category, so annual reporting of seller receipts is reasonable.

The seller should receive the same information sent to the tax authority, which would allow errors to be corrected and make it easier to prepare a return. The reported amount would still not automatically equal taxable income, because the seller may have business expenses and some transactions may not be taxable.

Where a company knows that someone appears to operate a business but cannot see completed sales, the information should be used only to assess risk. A social-media account may help identify a trader who should be contacted, it should not be used to estimate income from followers, messages or the number of products displayed.

The most difficult case arises when a company knows who received money and how much was transferred, but does not know why. Banks and mobile-money providers usually fall into this category.

Their records are valuable, but incomplete. The policy response should be to improve the quality of the information, not to pretend that every payment is business income.

Separate business payments from personal transfers

A transfer into a mobile money wallet can represent payment for goods, but it can also be a remittance, refund, loan, contribution towards a shared expense or movement between accounts owned by the same person.

Treating all incoming payments as sales would lead to incorrect assessments, place an unreasonable burden on taxpayers and encourage people to return to cash.

Ghana’s former Electronic Transfer Levy provides a warning. The levy charged certain electronic transfers without first establishing whether the money represented taxable business income, and was repealed in April 2025.

Payment records become more useful when business and personal funds are separated. Countries with widely used mobile money systems could require registered businesses above an appropriate national threshold to have a merchant wallet or business bank account for their commercial receipts.

The provider could issue an annual statement to the business, showing the total money received through that account, and submit the same information to the tax authority. The figure would be a starting point rather than an automatic tax assessment, since turnover is not the same as profit, refunds may have been paid and some sales may have been made in cash.

Businesses should be allowed to reconcile the statement with their records, deduct legitimate expenses and challenge payments that have been wrongly classified.

This approach directly addresses the weakness in payment data. Instead of asking a provider to guess which transfers entering a personal wallet relate to business, it creates an account whose stated purpose is commercial.

The requirement should not apply to every occasional seller. It could begin when a business registers, exceeds a turnover threshold or enters a simplified tax regime. Smaller traders could use merchant accounts voluntarily.

Governments would also need to make the arrangement useful to the business. Merchant accounts could support digital receipts, simpler tax returns, transaction histories for credit applications and lower-cost business services. Without practical benefits, traders may view the account only as a way for the government to monitor them.

Influencer income requires a different source of information

Influencers and content creators do not present exactly the same problem as product sellers.

Their income may come from companies, advertising agencies, foreign platforms or informal businesses. their payment can include cash, commissions, hotel accommodation, airline tickets, restaurant meals or a new phone.

When an established company pays for promotion, it knows the creator, the terms of the agreement and what was provided. The reporting obligation should therefore begin with the payer.

South Africa’s revenue authority has stated that influencers must declare income received through products, services and travel, as well as cash. Kenya applies withholding tax to payments for digital-content monetisation, at 5% for residents and 20% for non-residents, with the payer responsible for deducting and remitting the tax.

A practical rule would require formal businesses and advertising agencies to record both cash and non-cash compensation given in return for promotion, provide the influencer or content creator with an annual statement and report the payment where national law requires it.

This would not capture every arrangement. A foreign sponsor may sit outside the tax authority’s reach, while an informal business may keep no record of what it gave an influencer. The creator would still have an obligation to declare the income, supported by targeted enforcement where credible information exists.

The important point is that withholding and payer reporting work because the payer sees the transaction. They should not be presented as a general solution for all online income.

What happens when nobody sees the complete sale?

Some social media businesses will continue to receive cash, mix personal and commercial money and complete transactions without using a marketplace or formal company.

In these cases, no reporting rule can produce information that nobody holds.

Tax authorities will have to rely on ordinary registration, simplified record-keeping, sector-based compliance work and targeted investigations. A food seller advertising through WhatsApp may be approached in much the same way as another informal food business, although online advertising can help establish that commercial activity exists.

This is also where administrative judgement matters. Pursuing hundreds of very small sellers may cost more than the revenue collected, particularly when they fall below existing income-tax or VAT thresholds.

Do not confuse activity, receipts and taxable income

A social media account can show commercial activity, but not completed sales. A merchant wallet can show business receipts, but not the costs incurred to earn them. A platform that controls the transaction can report the amount paid, but that amount may still differ from taxable profit.

These distinctions should determine how the information is used.

Evidence of online advertising may justify contacting a business. Merchant-account records can support a pre-filled turnover figure. Verified marketplace payments can be compared with the seller’s tax return. None should automatically become a final assessment without allowing the taxpayer to explain errors, refunds, expenses and income already declared elsewhere.

Tax authorities across Africa do not need one new tax for every business conducted through a phone. They need reporting rules that reflect how different transactions are organised.

Where one participant knows the seller, the amount and the purpose of the payment, it should report the transaction. Where only part of that information is available, its use should be limited accordingly. Where nobody holds a reliable record, the government is dealing with the familiar problem of informality, not a problem that can be solved by demanding more data from Instagram.

The question is not only whether an online business should pay tax. The policy question is who can reliably show what was earned.

Tax administration should begin with that answer.