IconAdministration Outsourcing
IconAsset Managers
IconAssociations & Institutes
IconBBBEE Consulting and Verification Agencies
IconBusiness Chambers
IconBusiness Process Management
IconBusiness Process Outsourcing
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconDebit Order Collection Facilities
IconEducation and Training
IconHuman Resources
IconInformation Technology and Software Partners
IconInvestment Consulting
IconInvestment Fund Managers
IconListed Equities
IconParticipation Bond Managers
IconPolicy Administration
IconPolicy Trading
IconProperty Unit Trusts (PUTS)
IconRegulatory Authorities
IconStock Exchange
IconSurveys and Research
IconTraining Courses & Workshops
IconUnit Trust Fund Managers
IconWellness Programs
  Subscribe To »

The value of Value-Added Tax in Africa underestimated






Charles de Wet, Head of Indirect Tax, PwC Africa

Africa operates within a connected global economic system, with countries relying on global cooperation to address trade imbalances, the abuse of tax havens and the coordination of financial stabilisation efforts. There has been an increase and focus on cross-border trade and the VAT base has been broadened to include new types of supplies, across the continent. The recently released PwC ‘VAT in Africa Guide’ includes details about VAT systems in a number of African countries.

There is pressure on governments to increase the emphasis on VAT instead of income tax relying less on unpredictable taxpayer profits in order to ensure a sustainable economy. Tax authorities across Africa recognise this, with 36 countries having a VAT system in place.

Tax Authorities are also building up tax resources and introducing legislative changes. Tanzania enacted an entirely new VAT Act in 2015 and prior to that, Ghana in 2013 and Kenya in 2012. Across the globe, India passed a GST law in 2016 and the UAE plan for all GCC countries to introduce VAT any time from 1 January 2018 to 1 January 2019.

Contrary to corporate income tax where taxpayers often benefit from double tax treaties signed between two contracting states with the aim to reduce the risk of double tax, there are no such tax treaties for VAT/GST. It is good tax policy for VAT/GST to be neutral in international trade but this needs to be achieved through the local VAT/GST legislation. Differences in the various VAT/GST systems however, expose businesses to risks such as double taxation or penalties, interest and additional taxes in the event of not paying the VAT/GST correctly. The risk of not being compliant with VAT/GST legislation in a particular country is increased due to inconsistencies and complexities in the application of the particular country’s legislation.

This results in common issues which businesses experience across Africa, often with no clear answers or conflicting views. These include the extent of the activity which will trigger a VAT registration liability; the extent to which exported services are subject to the zero rate, when imported services will be subject to VAT and if VAT may be claimed as a refund or merely reflected as a credit to be offset against other taxes payable. In addition, non-residents may appoint a tax representative agent in some countries yet whether that agent is entitled to claim tax credits or tax refunds is contentious.

There are similarities in VAT systems in African countries, for example educational services as well as health and medical services, which are generally exempt from VAT. However South Africa and Ghana are exceptions as far as private health and medical services are concerned. International transport services would generally be either exempt or subject to VAT at the zero rate. Again, there are differences in interpretation of the VAT legislation in many countries, specifically which portion of the transportation supply chain would fall within the exempt category and which portion would be taxed at the zero or standard rate.

In Kenya there is currently ambiguity on whether VAT should be charged on membership/entrance fees, subscription fees and other charges to members. South Africa has always been clear in that VAT at 14 percent should be accounted for relating to sports, social and recreational activities. The claiming of input tax on such membership fees and entertainment is generally expressly denied across Africa.

Different rules also apply in respect of the rate applicable to services rendered to non-residents. South Africa and Namibia take the view that services rendered to non-residents may, under certain circumstances, be subject to the zero rate. Madagascar and Ivory Coast on the other hand provide that, because the services are rendered locally, the service would also be subject to the standard rate. There is some uncertainty in Mauritius as to whether such a service would be zero rated or not, with the legislation providing for the zero rate to apply, while a court decision states the contrary. The Mozambican VAT Code provides that most services will be subject to VAT as the services are provided by a resident in Mozambique. Only certain services provided to non-residents will not be subject to VAT, such as consultancy, advertising and telecommunication services.

In 2014, South Africa introduced provisions requiring foreign businesses providing defined electronic services to South African consumers to register as VAT vendors. It has now been proposed that the regulations be updated to broaden the scope of electronic services. Uganda has similar provisions, while Ghana has a provision that allows for such services to be supplied through an agent.

VAT rates also vary across Africa, with Djibouti applying a rate of 10 percent, Botswana 12 percent and South Africa, Swaziland and Lesotho 14 percent. Ethiopia, Gambia and Namibia have a VAT rate of 15 percent, whereas countries like Benin, Cameroon, CAR and Guinea Conakry have much higher rates of between 18 and 20 percent.

Navigating the VAT landscape in Africa remains a challenge but there is a drive towards harmonising legislation and aligning it with global best practice. The Organisation for Economic Co-operation and Development (OECD) is leading the debate in the International VAT/GST Guidelines and many African countries are considering the impact of the Guidelines. The conversation has only just begun and understanding the tax environment and ‘getting it right’ remains a priority for businesses until there is better alignment across the continent and more consistency in applying the legislation.

Source: Change The Conversation
« Back to previous page Print this page » |

Breaking News »

Sanlam Investments Market Review: December 2017

                Carl Roothman, CE of Sanlam Investments Retail Business                 Cape ...
Read More »


World Enters Critical Period of Intensified Risks in 2018

Structural and interconnected nature of risks in 2018 threaten the very system on which societies, economies and international relations are based, according to The Global Risks Report 2018 The positive economic ...
Read More »


Momentum Unisa Household Wealth Index Q3 2017

At last some good news for South African households as net wealth breaks its declining trend in the third quarter of 2017 Following six consecutive quarters of negative year over year growth, the real value ...
Read More »


South African fintech in 2018 – what can we expect?

Hot fintech start-ups to watch in the coming year                 Dominique Collett, senior investment executive at Rand Merchant Investments ...
Read More »


More News »


Healthcare »


Life »


Retirement »


Short-term »

Advertise Here
Advertise Here

From The Glossary »


Price-earnings ratio:

Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock's price.
More Definitions »

By using this website you agree to the Terms of Use.
Copyright © Stoker Risk & ICT (Pty) Ltd 2004 - 2018.
All Rights Reserved.





Contact IG


Media Pack


RSS Feeds