African Tax Matters - Q2 2019 - KPMG Denmark
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African Tax Matters - Q2 2019

African Tax Matters - Q2 2019

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African Tax Matters - Q2 2019

Understanding African Tax Matters

The summer holidays are right around the corner, and it is time to catch up on the African tax landscape with our quarterly newsletter.

We see a number of changes in African tax law with the aim of increasing tax revenue and strengthening tax administrations. These changes should entail a similar increased taxpayer focus on compliance.

With implementation of BEPS initiatives and a focus on increasing source taxation and revenue collection, the development in the African continent continues to be of interest to anyone conducting business in Africa.  

The digital economy in Africa is booming with the number of smartphone connections forecast to double from 315 million in 2015 to 636 million in 2022. In 2022 the mobile data usage in Africa is forecast to be seven times as high as in 2015. This promises exciting business opportunities, but also new risks such as the taxation of the digital economy, which is on the top of the political agenda.

In this edition of the newsletter, we have dedicated a section for the African digital economy and also a section for recent trends in African tax administration including significant fines for non-compliance.

Moreover, we will highlight national tax developments, including tax proposals from the Namibian government and comprehensive indirect tax reforms in Uganda and Kenya.  

Africa’s digital economy

The digital economy is on the top of the political agenda, both regarding growth as well as taxation.

With reference to OECD’s discussions on the taxation of the digital economy, the African Tax Administration Forum (ATAF) has published proposals for how to address the challenges in the taxation of the digital economy. These proposals have a significant focus on source taxation with the introduction of concepts similar to a digital permanent establishment. The ATAF is of the opinion that the current nexus and profit allocation rules are not ensuring appropriate taxing rights for source countries and in particular for African countries. ATAF will try to gain support for these views within the OECD/G20 Inclusive Framework on BEPS as a common international approach towards taxation of the digital economy is being sought for. 

Of more general interest, the World Bank has initiated a project called “Africa’s Digital Economy Moonshot”, which aims at doubling the access to broadband on the continent within 2021 and create digital access for all within 2030.

The Danish Minister for Development Cooperation donated approx. EUR 3m to the initiative.

The project shoots for the moon with its ambitions to help African countries accelerate their progress and lay the foundations for a prospering digital economy.

The African Union has a key role in the project. At the annual meeting of the world bank, the African Union Commissioner for Infrastructure and Energy said that: “All stars are aligned for Africa to seize the opportunity of the digital revolution and achieve a more integrated and prosperous continent.“

At KPMG, we look forward to seeing what the future brings and to participating with the companies when we take part in this digital revolution in Africa.

Trends in African tax administration

In general, African countries have had difficulties in collecting revenue from direct taxation and have in the past focused on revenue from indirect tax, customs, and excise duties. As a matter of fact, the rate of tax revenue as a percent of GDP has for many African countries been below 10%.

A report prepared by the UN described the domestic resources within the African continent as the largest untapped source of financing to fund national development plans.

In recent years, the wind of change is felt with the African Tax Authorities, as they are now increasingly turning their eyes towards building their capacity in regard to revenue collecting. This very trend can be found all around the continent, e.g. countries such as Nigeria, Ghana, Ethiopia and most recently South Africa, as described in the below section.

The increased focus on revenue collection is carried out in the form of broadened use of audits, significant fines for non-compliance and considerations of expanding the taxable bases.

Firstly, a study in 2018, based on revenue collecting in Rwanda, found a correlation between the tax audits performed and the revenue collected; thus, the tax authorities clearly agree with their increased focus on audits.

Secondly, the development in fines for non-compliance is noteworthy. In e.g. Nigeria, the fines are in particular significant in relation to Transfer Pricing and with regard to tax evasion. The Nigerian Tax Authority recently gave a USD 2bn fine to the South African company MTN.  

Finally, the trend is expressed with the consideration of expanding the taxable bases. This is seen with a gradual limitation of tax exemptions, but also in expanding the taxation to include the digital economy.

In the years to come, tax compliance will be key to a successful conduct of business in Africa.

South Africa

Tax news – Expanded use of taxpayer inquiries across all taxes anticipated

The South African Revenue Service (SARS) fell short in their object of collecting the projected tax revenue for the last fiscal year, making it five years in row that the projected tax was significantly higher than the actual collected tax.

The overestimating in projected tax revenue combined with an increased focus on tax revenue collection and cut in growth estimations for South Africa could entail that SARS is likely to further use the tool of tax inquiries, also outside the scope of criminal investigations.

Taxpayers thus need to be alert and to ensure their compliance. 

Read more here.

 

Tax news – Changes to foreign remuneration exemption, when working abroad

Effective from 1 March 2020, taxpayers working outside South Africa for more than 183 days in a 12-month period will no longer be completely exempted from South African income tax. From the date, taxpayers will only be exempted from South African income tax on the first R1 million, provided that the other criteria for exemption are met.

Read more here.

Kenya

Tax news – Indirect tax measures proposed in 2019 budget

A number of indirect tax news has been presented in the 2019 budget proposal.

Among others, the proposal includes a reduction of the rate on VAT withholding going from 6% to 2%.

Furthermore, services and machinery related to plastic recycling are proposed to be exempted from VAT as well as equipment used for the development of solar and wind energy.

Also worth noting is that the scope of the VAT is expanded to include supplies through the digital market place.

Read more here.

Uganda

Tax news – Indirect tax measures proposed in 2019 budget

The 2019 budget proposal for Uganda also includes indirect tax changes. The withholding rate of VAT is proposed reduced to 6%.

Furthermore, a proposal is made for an expanded list of supplies exempted from VAT, e.g. medicine, etc.

Read more here.

Indirect tax guide prepared by KPMG

Of general interest, please find the useful and informative Indirect Tax Guide of 20 African countries prepared by KPMG. Find the guide here.

Namibia

Tax news – Proposals for changes in tax law

A number of tax proposals were presented by the government at the end of March.

Among other things, the proposals include an introduction of a 10% tax on dividends paid to residents.

Moreover, it is proposed to disallow deductions for fees and interest paid to non-residents not subject to withholding tax. It is further proposed to disallow deduction of royalties for non-diamond mining entities.

With respect to the taxation of trusts, it is proposed to repeal the flow-through principles.

An increase in the fuel excise tax is proposed as well as an environmental levy on imported lubricant oil, on primary cells and batteries and on plastic carrier bags.

Read more here.

Nigeria

Tax news – Guidelines concerning the mutual agreement procedure

The tax service has issued guidelines concerning the mutual agreement procedure to resolve income tax treaty-related disputes.

These guidelines will provide valuable guidance to taxpayers finding themselves in situations of double taxation.

Read more here.

© 2019 KPMG Acor Tax, a Danish limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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