Amazon shows the power in conglomerates and good-evil that comes with that power: $0 Conglomerate Tax on $11.2 billion profit. Yes, my small U.S. company will pay more taxes than Amazon as the U.S. ecommerce pioneer has a federal tax bill of $0. This is a company with a market cap of $800 billion but it is going through the American tax season with no cheque to send the taxman. In short, its tax rate is actually -1% if you consider that Amazon has $129 million 2018 federal income tax rebate. But Amazon is not atypical: from GE to Dangote Group to Carlos Slim’s empire, nations and the citizens pay “taxes” to conglomerates.

Those wondering how many zeros Amazon, which is valued at nearly $800 billion, has to pay in federal taxes might be surprised to learn that its check to the IRS will read exactly $0.00.

According to a report published by the Institute on Taxation and Economic (ITEP) policy Wednesday, the e-tail/retail/tech/entertainment/everything giant won’t have to pay a cent in federal taxes for the second year in a row.

This tax-free break comes even though Amazon almost doubled its U.S. profits from $5.6 billion to $11.2 billion between 2017 and 2018.

To top it off, Amazon actually reported a $129 million 2018 federal income tax rebate—making its tax rate -1%.

Amazon’s low (to non-existent) tax rate has been chided by politicians ranging from Senator Bernie Sanders to President Donald Trump.

In this piece, I explained that conglomerates tax nations because they fix critical market FRICTIONS. Yes, Conglomerate Tax is a global thing. U.S. government may waive taxes for GE but will not listen to Facebook because GE is a conglomerate. They are treated differently because they technically build nations. Government may have the money but may also need a special plastic for a new warplane. There are few companies that can deliver such products. So, a government may engage a company like GE to research and develop the plastic. The company can ask for concessions to take that risk. Those concessions are taxes to nations since the nations must still buy the plastics if the conglomerate succeeds.

For Amazon, cities want it and because they do, Amazon an extract tax benefits. Just like that, everyone is paying for Amazon not to pay taxes because the tax waivers or rebates are coming from taxes paid by ordinary people and companies. So, next time you see them talking about Dangote Group, laugh. The problem on Dangote Group special benefits in Nigeria is not the company but the fact that Nigeria has only Dangote Group. In America where they have legions of them, it is a new normal in modern capitalism. In these companies, you find entities which have accumulated capabilities to fix frictions at the upstream level.

Dangote Conglomerate Taxes

LinkedIn Comment on Feed

1. Corporations’ accounting profits may differ from their taxable profits due to capital allowance deductions and loss reliefs charged against their profits, often those deductibles are higher than the depreciations recognised in their financial statements. Nevertheless large corporations are notorious for implementing tax avoidance mechanisms including the use of tax havens. Some are even accused of investing as much money on tax avoidance schemes as on technological innovation and mostly with the complicity of accountants and lawyers who find loopholes in tax regimes. Whilst these corporations as legal persons pride themselves with corporate citizenship, they fail to adhere to a fundamental tenet of citizenship. The dead weight loss resulting from this syndrome is the ever increasing gap between the rich and the poor as the greater populace continue to grapple with the negative externalities of these corporations despite their seemingly positive net contribution to society.
2. Way beyond what ordinary folk can understand, so once a politician or an activist wipes up the sentiments, you see how the reactions go. You hear robbery, cheating, favouritism; in reality, it doesn’t work like that. When you need something desperately, obviously you are willing to cut any kind of deal, but when the other party begins to enjoy its dividends, envy and greed usually show up. If you need jobs and infrastructural development, you can forgo taxes, your citizens get the jobs, city and education institutions around benefit too. The problem starts when you want all the taxes, at same time you want jobs and development; the world was never configured to be that perfect!

A securities filing report has revealed that MultiChoice has 13.9 million subscribers, across Africa, implying that many people do not have the choices, yet, to sign-up to many of the company services. In a continent of more than 1.2 billion people, one would have expected a clear category-king and dominant player to have better numbers since it began operations in 1996. This is typical in Africa – projections by pundits are always ahead in multiples when real numbers arrive. Recall the revelation that old Konga had just 350k users via a securities report filed by one of its (then) major European investors. Before that report, everyone had assumed the user base was in millions.

It supported the claim by comparing its subscriber base – which currently stands at 13.9 million across Africa – against those of Canal Plus Afrique, StarTimes and Netflix.

The Guardian checks showed that by late 2017, Nigeria controlled 40 per cent of MultiChoice Africa’s subscriptions.

But StarTimes’ Overseas Public Relations Director, William Masy, disclosed that approximately three million Nigerians are subscribed to the organisation’s services and products.

Netflix rising subscribers in Nigeria are also in millions.

The United States is about 25% of Africa’s population but Netflix alone has about 60 million subscribers, indicating a higher level of penetration. Netflix using the web to distribute has a huge advantage since the delivery mechanism is unbounded and unconstrained with a better marginal cost which helps its scalable advantage. It is possible that the rise of Netflix will remain a continued and sustained challenge to MultiChoice business in Africa. Netflix opened for Nigerians not long ago, and now has 1 million subscribers while MultiChoice despite its long presence has just 3 million subscribers. Yet to confront this challenge with a top-grade online streaming business will bring the innovator’s hangover paralysis within MultiChoice: you cannot destroy the highly profitable cable business for a largely low-margin online one.

Do not bet that Naspers, owners of MultiChoice, might not have given up by this unbundling of MultiChoice as a separate entity in the Johannesburg Stock Exchange. Yes, the firm remains solid, in the short term, but long-term view in the age of the web is severely gloomy.

LinkedIn Comment on Feed

1. The day we are going to discover the true population figure of Nigeria, and also the number of Nigerians whose annual incomes are from N1 million up; maybe it will help demystify a lot of things about market size here. MultiChoice having less than 4 million subscribers, with good portion on GOtv, not good enough; but that’s the reality. Facebook still has less than 30 million Nigerians, and that’s the platform with largest concentration of Nigerians online, and yet we don’t have 50 million people there yet. We are yet to see any figures close to all the projections about market size and value in this part of the world, aside from NNPC telling us that we consume more 50 million litres of petrol daily. Someone needs to enter the dock and answer some questions…

2. The coming years may not be funny for them. Seriously considering the disruptive innovations going on with Netflix and other of such businesses and the increase in data availability. Nigeria in particular is a huge market and Multichoice could do better by reviewing their billing pattern. Why would one pay  Naira 18000+ (Which expires active or not) for old movies and regular news channels when Netflix offers unlimited streaming for Naira 4000 or their about for recent and trending movies with even better quality. Multichoice could begin with pay as you watch options. this will give them a chance to fight pending imminent mega disruptions that will follow when other of such ventures like Netflix create the real competition.

3. The likes of Netflix care for the younger tech savvy generation, while DSTv has the broader family oriented traditional audience. This market share is not going to dissipate overnight. The tech infrastructure in the country is still far behind, but in- line with DSTv audience. Yes DSTv will have to work hard to keep a good percentage of the younger generation, and there is one way rhis is already working. Satellite TV service providers are now embedding the likes of Netflix, Amazon Prime, YouTube, etc into their hardware, providing a onestop service; purchase my service and box and also have access to online streaming as well. This model seems to accommodate both the traditional household and young audience, added with an on-the-go app. We are a very longshot away thinking the model of Netflix will be the traditional means of consuming digital tv screening. 

Good News for DStv: South Africa Upgrades Its Tax Policy, Forcing Netflix to Pay VAT