It will without doubt be another year of interesting developments to follow in the broad and diverse sphere of African tax.
With the expectations for global growth declining, Africa continues to promise high growth rates and increase in investments. The African Development Bank projects the continent’s growth in GDP to increase from 3.5% in 2018 to 4% this year and 4.1% next year.
To take part in the promising African growth adventure, businesses need to navigate in ever changing African tax landscape, many of which aim at making it more favourable to do business in Africa.
The tax landscape in Africa is and will continue to be subject to regulatory changes to ensure taxation as a reliable source of income for the African nations and to strengthen local tax administrations and transboundary cooperation.
This edition will namely focus on the development in Nigeria, which includes business friendly tax incentives along with a new code on corporate governance. We will also cover a new carbon tax and VAT registration for suppliers of e-services in South Africa, and finally the substantial reform on income tax in Botswana, and touch base on the new double tax treaty between Senegal and Luxembourg.
In the last edition, we touched upon the proposed Africa-EU Alliance. This alliance has mainly an economic purpose and is to be read together with the Cotonou agreement, which focuses on migration, security, human rights and sustainable growth.
The Cotonou agreement is concluded between the EU and the ACP countries (African, Caribbean and Pacific countries) and expires in February 2020.
With the first round of negotiations done at the end of 2018, the rest of the agreement is to be renegotiated throughout this year.
It is proposed by the EU to make the new structure more adaptable to each region’s needs, thus taking into account economical, political and social developments of the regions.
One of the priorities proposed by the EU towards the African region is to focus on unleashing economic opportunities. It is a framework that promises better, safer and more sustainable opportunities for EU-Africa trade as well as for intra-African trade.
For the EU, (trade) relations with Africa remain central. In this quarter, the EU supported financially the establishment of the African Union Trade Observatory.
With the work of this institution, we can expect even more accurate trade and growth indicators in the future.
The Trade Observatory is part of the African Union’s Agenda 2063 and is an important step towards the creation of the African Continental Free Trade Area.
Below is an overview of the most relevant tax updates within the African tax landscape
Tax news – incentives for road and infrastructure development
As a means to further infrastructural development in Nigeria, the government offers a full cost recovery for companies funding eligible road and infrastructural projects. The scheme will be set up as a public-private partnership which offers a full cost recovery through a tax credit.
The scheme is available to Nigerian companies as well as to institutional investors.
The tax credit will be issued annually as the milestones in the eligible project are achieved.
Participants in the scheme will also be entitled to sell or transfer the tax credit subject, provided they meet certain conditions.
Read more (PDF: 440,47 KB).
Tax news – new code on corporate governance
The code is expected to enhance business integrity, rebuild public trust and confidence, facilitate trade and investment, and drive business sustainability.
The implementation of this code will provide a better and safer business environment in Nigeria.
Tax news – proposed carbon tax.
A new carbon tax is expected to enter into force 1 June 2019 and will affect all areas of the economy. It will be calculated based on classifications on industry, sector and activity.
The carbon tax is based on the simple “polluter pays” principle, but the application of the tax is complex and will require measuring and verifying emissions.
With the implementation date approaching quickly, taxpayers will need to take appropriate steps now in order to comply.
Tax news – extension of business incentives
It is important to note that certain business incentives limit the effects of the carbon tax. These incentives include a tax deduction for energy efficient savings which will be extended until 31 December 2022.
The employment tax incentive (ETI) has also been extended until 2029. It is aimed at encouraging employers to employ young people. Furthermore, the scope of the ETI has been broadened to also cover employees from Special Economic Zones, regardless of their age.
Read more and see the useful “tax guide” by a South African member firm here, which reviews the taxes applicable in South Africa.
Taxs news – no other tax increases, but focus on increasing the efficiency in tax collecting.
In connection with the 2019 budget proposal, the Finance Minister noted that the tax revenue as a proportion of GDP has started to decline, even though the tax rates have been increasing since 2016.
Thus, as a result hereof the budget proposal for 2019 has no increase in taxes, but instead an aim to increase tax collections and step up the efficiency of it.
Tax news - new VAT registration requirements, non-resident suppliers of e-services
From 1 April 2019, non-resident suppliers of e-services will be required to register for VAT purposes in South Africa, with a few exceptions. This is due to an expansion of the definition of the services covered.
It is also important to note that there is no exclusion for B2B supplies.
Tax news – amendment on income tax law
2018 ended with a number of changes to the income tax law in Botswana. This includes the introduction of transfer pricing rules which used to be covered by the general anti-avoidance provisions.
The amendments also included an update to civil and criminal sanctions for non-compliance.
Of general interest, the changes will affect interest deductions. New anti-earnings stripping rules, effective 1 July 2019, limit deduction for “net interest expense” to 30% of EBITDA.
In the light of this, companies will want to review their debt-expenditure-to-tax-EBITDA ratios.
Read more and see the useful “tax card” from a Botswanan member firm here, which reviews the taxes applicable in Botswana.
Tax news – new double tax treaty (DTT) between Senegal and Luxembourg applicable
Effective 1 January 2019, the new DTT between Senegal and Luxembourg entered into force. This is of general importance because of the implementation of the BEPS provisions in the DTT.
In the relationship between a developed country and a developing country, the transactions will mostly be investments from the developed country to the developing country. Source-based taxation let the developing country keep its tax ability.
The rules on allocation of taxing rights in the DTT show a significant influence from the UN model tax treaty. The DTT between Senegal and Luxembourg is oriented towards source-based taxation.
The new DTT has the potential of being a model for upcoming DTTs between developing and developed countries, because it, in line with the public demand, leads to fairer treaties and fairer taxation.
Cameroon and Morocco
Tax news – new tax inspectors without borders (TIWB) cooperation
Moroccan tax inspectors will be providing support to Cameroon in a programme focused on the audit of multinational enterprises. The programme will, according to the Director General for taxes of Cameroon, benefit Cameroon in terms of additional tax revenue and capacity building.
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