An African Tax Story
This was the cry of Bob Marley and his band, The Wailers, during the Zimbabwean Independence Celebrations some 35 years ago. Africa Unite is a mantra that has been echoed by countless African leaders, organisations and human rights activists over the years, however the questions to be asked are:
What is the extent of our unity as Africans?
Does it extend beyond culture, politics, languages and ideologies?
Despite our numerous differences, African countries surprisingly, have a number of things in common from a tax perspective. African Governments, now more than ever, need to raise higher amounts of domestic revenues in order to come close to meeting the recently adopted Sustainable Development Goals (SDGs) and also, the vision and priorities set out in the African Union’s Agenda 2063, which some argue are more comprehensive than the SDGs.
As a result of these significant financial requirements, collaboration between African Governments is on the rise. In addition, the promotion of “intra-African” trade through organisations such as “the Made in Africa Foundation” and various economic and customs zones (COMESA, ECOWAS, SADC), encourages African businesses to work closely together.
These positive developments should be “food for thought” for African businesses and investors, but more importantly, the areas of tax intersection outlined below should be of particular interest:
Transfer Pricing (TP) regulations
Over the past few years, TP regulations have been introduced in a number of African countries. Currently, Ghana, Nigeria, Kenya, Tanzania and South Africa all have detailed TP rules. Other countries will surely follow.
Capital Gains Tax (CGT)
CGT has existed in Ghana for a while but its introduction, particularly linked to the oil and gas industry, has surfaced in Uganda and Kenya (although recently withdrawn in Kenya). CGT is also present in the following African countries: Nigeria, South Africa, Botswana, Tanzania, Senegal, and Cape Verde. Zimbabwe has the highest rate at 50% whilst Gambia comes in at a low 5%. CGT is particularly relevant when it comes to gains made from the sale of shares or assets held in the countries mentioned.
Value Added Tax (VAT)
VAT is an increasingly popular revenue generation tool for Governments especially in Africa. VAT exists in over 15 African countries with rates ranging from 5% to 20%.
Currently, presumptive taxes are present in a number of countries, including Ghana, as recently introduced in the new Income Tax Act, 2015 (Act 896) with a turnover-based presumptive tax of 3%. Presumptive taxes typically work as a tax on turnover and can start from 0.5% of turnover working upwards. Presumptive taxes are a great way for Governments to widen the tax base and obtain tax revenues from small businesses and sole proprietorships. Presumptive taxes also work towards combating tax evasion by ensuring that all businesses pay some form of tax especially during loss-making years.
Phasing out tax exemptions
With many African countries receiving lesser amounts in overseas development assistance, there is a focus on raising more revenue internally through efficient tax administration. Tax exemptions have unfortunately earned a bad reputation due to abuse by some beneficiaries; this has resulted in tax authorities in Africa being less willing to grant exemptions whilst focusing on phasing out many existing ones.
Collaboration of tax authorities
On 13 July 2015, the OECD in partnership with UNDP, launched the “Tax Inspectors Without Borders” initiative at the third International Conference on Financing for Development held in Addis Ababa.
The Tax Inspectors Without Borders (TIWB) initiative involves tax experts from developed countries, providing support to African countries in terms of conducting tax audits and sharing best practice on a number of emerging issues. The approach is described as “real time” and “learning by doing” and will involve serving or recently retired tax officials.
Increased collaboration is a step in the right direction for African unity, enhanced revenue generation and sustainable development for the entire continent.
Note to African businesses and taxpayers: Prepare accordingly.