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Africa tax in brief

African Tax Administration Forum: Digital Services Tax proposed for member countries

The African Tax Administration Forum (“ATAF”) on 30 September 2020, released its Suggested Approach to Drafting Digital Services Tax Legislation as guideline for taxing highly digitalised businesses operating in member countries.

The suggested legislation proposes standard text in terms of which tax at a rate of between 1% and 3% is to be levied on gross annual digital services revenue earned by a company or multinational enterprise in a country.

Activities within the scope of the proposed legislation include online advertising services, data services, online marketplace or intermediation platform services, facilitation of rental or use of real property located in a country, vehicle hire services, digital content services, online gaming services and cloud computing.

The suggested legislation proposes formulas for allocating income from these services to a particular country and details how countries can determine the users of the services.

ATAF highlighted that no consensus has been reached globally by the OECD Inclusive Framework on how to deal with the tax challenges arising from the digitalisation of the economy. In the interim, African countries need a solution to ensure that revenue is not lost, especially in the current scenario where businesses are increasingly transacting through online platforms.

AFRICAN UNION: Commencement of trade through AfCFTA scheduled for 1 January 2021

The Secretary General of the African Continental Free Trade Area (“AfCFTA”) has officially announced on 9 September 2020 that trade through the AfCFTA is to commence on 1 January 2021. It was initially scheduled to commence on 1 July 2020, but was postponed due to the COVID-19 pandemic.

The key focus of the AfCFTA is the launching of trade corridors to enable easy access and transit of essential goods or germ-killing products, such as soaps and disinfectants, to help combat the COVID-19 pandemic. The African Ministers of Trade are also exploring the possibility of reducing customs duties in order to make these essential goods more available and affordable.

DEMOCRATIC REPUBLIC OF CONGO: VAT exemption on import of basic essential products scrapped

In an official statement (No. 01/0033/DGI/DESCOM/MT/2020) of 24 August 2020, the Congolese Tax Administration (Direction Générale des Impôts, DGI) announced the end of the value-added tax (“VAT”) exemption on the importation of basic essential products implemented as part of the COVID-19 pandemic emergency tax measures in April 2020.

ETHIOPIA: Import duty on essential goods removed

The Ministry of Trade and Industry on 4 September 2020 announced duty relief on the importation of essential goods available to licensed food importers, importers who have obtained import permits, and persons who have foreign currency to pay for imports as part of economic measures in response to the COVID-19 pandemic. Items eligible for duty-free entry include edible oil, sugar, wheat, rice and baby formula.

EQUATORIAL GUINEA: Tax amnesty regime introduced

Equatorial Guinea introduced a 18-month tax amnesty regime through Law No. 1/2020, which was published on 24 July 2020 and entered into force on 23 August 2020. The regime allows taxpayers to file a special tax statement for the disclosure of outstanding tax liabilities in connection with the 2015 to 2019 tax years.

The regime covers corporate income tax, personal income tax, VAT, and property registration fees for both resident and non-resident individuals and legal entities. After the special tax statement is filed, taxpayers and the tax authority may agree to:

  • full payment of the tax liability within 30 days, which provides for a 20% reduction in the tax liability; or
  • payment in instalments over a period of up to 10 years, subject to 10% annual fine.

GABON: Tax amendments introduced by Law 19/2020

A number of tax relief measures, aimed at alleviating the economic impact of the COVID-19 pandemic, were outlined in Law 19/2020 of 17 July 2020, and replace the provisions of the initial Finance Law 2020. Significant measures include:

  • a six-month exemption from customs duties on all imported goods used to fight the pandemic. The designated list of goods and the effective date of the relief are yet to be published;
  • a 50% reduction in business licence duty and synthetic tax for very small enterprises and small and medium enterprises which undertake to maintain the payment of their employees' salaries between CFA80 000 and F.CFA150 000 per month;
  • a reduction in penalties on income tax for businesses that undertake to preserve employment or provide financial support to their employees;
  • tax exemption on bonus payments to employees during the lockdown period; and
  • extending the tax administration’s limitation periods for tax control and collection procedures for a period of six months.

A series of amendments to various tax laws aimed at broadening the country's tax base was introduced at the same time. Significant measure include:

Corporate income tax

  • changes in determining taxable income resulting from the execution of multi-year contracts. Going forward, taxable income will be based on the percentage of completion method;
  • amendments in relation to allowable deductions, including:
    • limiting the deduction of certain payments to non-residents, including head office expenses, expenses related to studies, technical, financial or accounting assistance, commission, interest on bonds, debts, deposits and guarantees and royalties paid for use of patents, licences, trade marks, designs and models to 5% of taxable income instead of the 10% limit in previous periods. Disbursements that do not exceed 5% (previously 8%) of the operations costs which are reimbursed to the coordination centres (les quartiers généraux), are excluded from the taxable base, provided that they are of an occasional and incidental nature;
    • disallowing the deduction of interest paid on loans for the production of a fixed asset;
    • applying a 20% amortisation rate on costs incidental to the acquisition of land, costs of acquiring equity security, other fixed assets, and expenses relating to mining real estate excluding prospecting costs;
    • allowing mining fundamental research costs to be amortised at a rate of up to 20% and allowing taxpayers carrying on mining and petroleum operations to amortize prospecting costs; and
    • disallowing the deduction of provisions made for exchange losses, foreign exchange hedges, dismantling (subject to establishment agreements) and for tax audit costs relating to non-deductible taxes.

VAT

  • the reduction of the of the VAT registration threshold from an annual turnover of CFA150-million to F.CFA60-million;

Personal income tax

  • removing the 50% employment income tax allowance granted to non-resident managers of coordination centres;
  • taxing gains from shares preferentially assigned to employees and gains from disposal of such shares as employment income, subject to a 50% tax allowance. This will also apply to shares issued to employees at no consideration;
  • exempting from employment income allowances paid in the event of death;
  • increasing the evaluation rate for dwelling benefits in kind granted to employees from 6% to 15%;
  • removing the tax exemption on capital gains from the disposal of real estate, furniture and cars by individuals;
  • introducing a lump-sum tax for the issuance of non-resident employee's residence permits;

Other taxes

  • increasing the forestry superficies tax rate from CFA400 per hectare to F.CFA300, F.CFA600 and F.CFA800 respectively, depending of the type of concession;
  • decreasing the registration duties on transfer of immovable properties from 13% to 6%;
  • introducing tax at a rate of 2% on cash withdrawals (of at least CFA5-million) from banks and other financial institutions;
  • introducing tax on forestry titles transfers of CFA5 000 per hectare;
  • introducing a rental tax for forestry permits of CFA2 500 per hectare; and
  • introducing a road occupancy royalty levy, ranging from CFA5 000 to F.CFA1-million.

Administration

  • deeming a resident customer or beneficiary of a service provided by a non-resident to be its representative for tax purposes in the absence of a designated representative;
  • introducing the mandatory declaration of a statement listing all funding and donations made by non-residents to associations and assimilated entities. Non-compliance with this obligation will result in the forfeiting of corporate income tax exemptions;
  • requiring taxpayers registered in the medium-sized tax office to file a statement on their ultimate shareholders at the beginning and end of the fiscal year and a list of suppliers and customers; and
  • requiring taxpayers to make all payments of at least CFA2-million by bank transfer, cheque or electronic means.

GHANA: Communication service tax rate reduced to 5%

On 27 August 2020, Ghana enacted amendments to the Communications Service Tax Act, 2008 (Act 754), providing for a reduction in the communications service tax (“CST”) rate from 9% to 5% with effect from 15 September 2020. This follows an increase in the CST from the initial 6% rate to 9% in August 2019.

MAURITIUS: New social security contribution scheme introduced

Mauritius has introduced the General Social Contribution (Contribution Sociale Généralisée, CSG) to replace the National Pension Fund (“NPF”) contribution system effective from September 2020.

Employers will deduct, where applicable, employees' contributions from their wages or salaries and pay the contributions together with the employers' contribution to the Mauritius Revenue Authority (“MRA”) at the following new contributory rates for employees in the private sector earning a basic wage or salary:

  • not exceeding MUR 50 000 a month: 1.5% employee contribution; and 3% employer contribution; and
  • exceeding MUR 50 000 a month: 3% employee contribution; and 6% employer contribution

Before the introduction of the CSG, the monthly contribution rates for the NPF were as follows:

  • an employee contribution of 3% of the basic salary, limited to a maximum contribution of MUR562; and
  • an employer contribution of 6% of the employee's basic salary, limited to a maximum contribution of MUR1 124. The maximum contribution was based on a maximum monthly wage of MUR18 740.

The monthly return and payment of CSG withheld with respect to a given month must be made electronically on or before the last day of the following month through the MRA's website. A grace period will be granted for September 2020. The deadline for submission of the return is 30 November 2020 instead of 30 October 2020.

Employers failing to abide will have to pay a 10% penalty on the amount due plus interest of 1%.

MOZAMBIQUE: Implementation of the e-Taxation System fast-tracked

As part of its continued fight against the COVID-19 pandemic, the Government of Mozambique has fast-tracked the launch of the e-Taxation System, allowing taxpayers to submit tax returns and make tax payments online, through 12 commercial banks.

The system allows the submission of the below listed tax returns:

  • value-added tax (Returns M/A, M/B, M/C and M/E);
  • withholding tax return for individual income tax (return M/19);
  • withholding tax return for corporate income tax (return M/39); and
  • simplified tax for small taxpayers.

Currently, the system only allows for submission of payment returns and within the legal deadline. The Mozambique Tax Authorities are testing the system to allow for submission of credit returns and issuance of tax clearance certificates.

The next phase of implementation of the system will be to allow for submission of annual tax returns for the individual income tax (return M/10) and the annual returns for corporate income tax and accounting information (returns M/22 and M/20 respectively) and outdated returns.

NIGERIA: Federal High Court rules that the Minister of Finance does not have the power to draft or amend laws

In its judgment on 8 May 2020 in the case of Registered Trustees of Hotel Owners and Managers Association of Lagos vs Attorney-General of the Federation of Nigeria and Minister of Finance (FHC/L/CS/1082/19), the Federal High Court ruled that the power to legislate is the function of the parliament to exercise, and that power cannot be shared with or delegated to another body.

The case followed the issuing by the Minister of Finance of an the Amendment Order, expanding the Schedule to the Taxes and Levies (Approved List for Collection) Act, Cap. T2, LFN 2004 (“TLA”) by including, amongst others, "hotel, restaurant or event centre consumption tax" to the list of taxes to be collected by state governments. As a result, various states, including Lagos state, enacted consumption tax laws and commenced collection of the tax. Aggrieved by the imposition of consumption tax by the Lagos State Government, the Registered Trustees of Hotel Owners and Managers Association of Lagos instituted a legal action against the Attorney-General of Nigeria and Minister at the Federal High Court.

The court ruled that the delegation of the legislative function by the TLA to the minister is a violation of the principle of separation of powers as laid down in the Constitution and it nullified the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015 (Amendment Order) issued by the minister.

NIGERIA: Contradictory Tax Appeal Tribunal rulings on the VAT implications of rental income

On 10 September 2020, the Lagos Tax Appeal Tribunal (“TAT”) in its decision in the case of Ess-Ay Holdings Limited (EHL) vs Federal Inland Revenue Service (FIRS) (TAT/LZ/VAT/029/2019) ruled that rental income derived from the lease of real estate properties, whether for residential or commercial purpose, is beyond the scope of the Value Added Tax (VAT) Act CAP V1 LFN 2004 (as amended) on the basis that real estate properties by their nature do not qualify as "goods" and a lease agreement in respect of real estate properties does not amount to rendering of "services". As rent derived from the lease of real properties, whether for residential or commercial purposes, is not a supply of goods or services it is, therefore, not liable to VAT.

However, in Chief J.W. Ellah & Sons Company Ltd v FIRS decided by the TAT in Benin State on 9 September 2020, the TAT held that commercial leases were indeed subject to VAT. In arriving at its decision, the TAT relied on the definition of “supply of goods” in the VAT Act particularly on the phrase the letting out of taxable goods on hire or leasing of taxable goods.

NIGERIA: Tax Appeal Tribunal affirms that certain company expenses are tax deductible

TAT, in its decision of 28 February 2020 in the consolidated case of Tetra Pak West Africa Limited (Tetra Pak) vs the Federal Inland Revenue Service (FIRS) (Case References TAT/LZ/CIT/030/2015, TAT/LZ/CIT/031/2015, TAT/LZ/CIT/032/2015, TAT/LZ/CIT/033/2015), ruled that company expenses such as payments for demurrage, school fees, training and education among others are tax deductible because they were wholly, reasonably, exclusively and necessarily incurred for its business purpose, but disallowed the company's claim to Investment Tax Allowance on computers on the basis that computers do not constitute plants and equipment for the purpose of the company's business.

NIGERIA: FIRS issues a Public Notice on Mandatory Requirements for Registration for Tax Purposes

The FIRS issued a public notice, pursuant to the provisions of Section 8(1)(l) and (m) of the Federal Inland Revenue Service (Establishment) Act 2007, requiring taxpayers to register for tax, irrespective of whether their profits are exempted from tax or not.

RWANDA: New transfer pricing rules approved

On 25 September 2020, Cabinet approved the ministerial order establishing new general rules on transfer pricing, which will repeal the existing transfer pricing rules that have been in force since 2005.

The new transfer pricing rules will enter into force following their publication in the Official Gazette of the Republic of Rwanda.

RWANDA: New thresholds for registering large taxpayers introduced

The Rwanda Revenue Authority (“RRA”) on 14 September 2020 issued Rule No. 003/2020 of 05/08/2020, stipulating that taxpayers meeting the following conditions will be registered by the RRA as a large taxpayer and notified of this in writing:

  • generating annual turnover of more than RWF1-billion;
  • having paid income tax and value added tax of at least RWF100-million per year for three consecutive tax periods;
  • having paid pay-as-you-earn tax of at least RWF200-million per year for three consecutive tax periods;
  • having paid withholding tax of at least RWF1-billion per year for three consecutive tax periods;
  • having incurred losses of at least RWF500-million per year for three consecutive tax periods;
  • having invested into a new project for an amount of at least RWF5-billion; or
  • being a commercial bank, insurance company or telecommunications company.

Large taxpayers are subject to more stringent compliance requirements than taxpayers in other categories, including heavier penalties in case of non-compliance.

RWANDA: Quarterly filing of pay-as-you-earn returns introduced

The RRA, on 14 September 2020, issued Rule no 001/2020 of 05/08/2020 determining modalities for the declaration and payment of pay-as-you-earn (“PAYE”) tax on a quarterly basis. Taxpayers whose annual turnover does not exceed RWF200-million are allowed to declare and pay PAYE on a quarterly basis within 15 days after the end of the quarter to which the PAYE relates.

A taxpayer who wishes to make declarations on a monthly basis may notify the RRA and in such case, the taxpayer would continue to declare and pay PAYE on a monthly basis for a period of at least two years.

RWANDA: Guidance on the payment of tax debts issued

The Commissioner of the RRA on 14 September 2020 issued Rule No. 002/2020 of 05/08/2020, providing guidance to taxpayers wishing to pay their tax debt in instalments. The maximum period for payment of the debts in instalments is 12 months, but this period may be extended by a further period not exceeding 24 months based on the evidence provided by the taxpayer.

A taxpayer requesting payment of a debt in instalments must:

  • submit a letter of application to the commissioner stating the type of tax, the amount, tax period, the instalment payment plan and the reasons for failure to make a one-off payment;
  • provide proof of payment of at least 10% of the amount owed;
  • not have been implicated in tax evasion; and
  • provide a guarantee acceptable to the RRA. This requirement may, however, be waived by the commissioner.

The taxpayer authorised to pay tax in instalments may request and receive a tax liability certificate allowing it to obtain the services regularly provided to taxpayers without tax debts.

RWANDA: Taxpayers to pay 25% of principal tax before the amicable settlement of tax disputes

The RRA, on 14 September 2020, issued Rule No. 004/2020 of 05/08/2020, determining the modalities for amicable settlement of tax-related disputes with taxpayers. A taxpayer may lodge a request for amicable settlement with the Commissioner General of the RRA, subject to, inter alia, having paid at least 25% of the principal tax amount. This requirement does not apply if the amicable settlement is requested while the tax dispute is pending in court.

UGANDA: Effective date of electronic receipting extended

The Uganda Revenue Authority, in a public notice issued on 25 September 2020, extended the effective date of the Electronic Fiscal Receipting and Invoicing System (“EFRIS”) to 1 January 2021. Originally, all VAT-registered taxpayers were required to start using the EFRIS on 1 July 2020 with a three-month implementation period to allow for a smooth transition.

ZAMBIA: Tax laws amended to stimulate economic activity and combat COVID-19

The 2021 National Budget, presented by the Minister of Finance to parliament on 25 September 2020, proposed a series of tax amendments in an attempt to stimulate economic activity and combat the spread of COVID-19 for implementation on 1 January 2021. Significant proposed amendments include:

  • an increase in the exempt threshold for PAYE;
  • a reduction of the corporate income tax rate from 35% to 15% for specified taxpayers; and
  • the removal of import duties on selected items.

Corporate income tax

  • increasing the number of years for claiming the 10% development allowance from three to five years. This allowance is applicable to persons growing rose flowers, tea, coffee, banana plants or citrus fruit trees or other similar plants or trees;
  • introducing a local content allowance for income tax purposes for utilization of selected local raw materials;
  • increasing the tax rate on betting from 10% to 25% of gross takings;

Personal income tax

  • raising the exempt threshold for PAYE from USD165 to approximately USD200.33 per month and adjust the income tax bands accordingly;
  • increasing the amount allowed as a deduction by an employer for employing a person with a disability from USD50 to USD100 per annum;
  • increasing the tax credit for a person with a disability from USD12.50 to USD25 per month;
  • reducing the corporate income tax rate from 35% to 15% on income earned by hotels and lodges on accommodation and food services

VAT

  • zero-rating equipment used for full body sanitization to combat the spread of the COVID-19 pandemic and tractors above 90 horsepower.

Sources include IBFD’s Tax Research Platform; www.allafrica.com; http://tax-news.com

Celia Becker

Africa Regulatory and Business Intelligence | Executive

cbecker@ENSafrica.com

+27 82 886 8744