Africa Tax In Brief (4 May 2015) - Sales Taxes: VAT, GST

ANGOLA: Tax administration structural reform

In support of the tax authorities' objective to offer taxpayers accessible tax administration offices, Executive Decree No. 151/15 of 25 March 2015, which introduces a structural reform of the tax administration, was published in the Official Journal on 30 March 2015. The Decree reorganizes the tax administration structure under 7 regional offices, located in the following locations: Cabinda, Malanje, Luanda, Lobito, Namibe, Cunene and Saurino. The new provisions are effective as from 30 March 2015.

BURKINA FASO: Investment Protection Agreement with Canada signed

Burkina Faso signed a foreign investment protection agreement (IPA) with Canada on 20 April 2015 in Ottawa.

DJIBOUTI: New free trade zone created

The Djibouti Free Trade Zone, which will be subject to the provisions of the Free Zones Code (Law No. 53/AN/04/5ème L) and of the Trading Companies Law (Law No. 103/AN/05/5ème L), was created through publication of Decree No. 2015-062/PRE in the Official Gazette on 7 March 2015. The area covers about 43.5 sq. km and is placed under the responsibility of the Ports & Free Zones Authority.

ETHIOPIA: Treaty with United Arab Emirates signed

Ethiopia and the United Arab Emirates signed a tax treaty in Abu Dhabi on 12 April 2015.

GHANA: Memorandum of understanding on automatic exchange of information between Ghana and Netherlands

A memorandum of understanding on automatic exchange of information (MoU) was signed by Ghana on 24 March 2015 in Accra, and by the Netherlands on 3 April 2015 in the Hague. The MoU entered into force on 3 April 2015 and will apply for the first time to information concerning the 2014 calendar year. It will remain applicable until terminated (in writing) by one of the parties and will be evaluated after 5 years.

The MoU contains guidelines on the automatic exchange of information with respect to income from real estate, dividends, interest and bank accounts, royalties, income from independent personal services, income from dependent personal services, directors' fees, income from artists and sportsmen, pensions (including government pensions and annuities), income from government service and other income.

Information relevant for the correct determination of the tax due will, at least once per calendar year, be exchanged automatically at the latest within 6 months after the calendar year.

KENYA: Reintroduction of capital gains tax does not violate the Constitution

The High Court of Kenya in its decision in the case of Kenya Association of Stock Brokers and Investment Banks (KAISB) v. The Attorney General & The Kenya Revenue Authority (Petition No. 22 of 2015) delivered on 20 March 2015, held that there was no violation of the principle of public participation in the reintroduction of capital gains tax (CGT) via Finance Act, 2014 (the Finance Act). In addition, the provisions reintroducing CGT are not contradictory and/or vague in nature nor are they retrospective in effect as to amount to a violation of the Constitution of Kenya (the Constitution).

The KASIB lodged a petition challenging the provisions of the Finance Act relating to CGT, on the grounds that the process of enactment and the content of the two sections do not conform with the Constitution on the basis that:

section 10(a) and 23 were not initially contained in the Bill that was published for public comment, were introduced on the floor of parliament and thus did not accord public participation as required by the Constitution, and that the sections introduce provisions;
the sections are vague and contradictory with the corresponding provisions contained in the Income tax Act (ITA), especially with respect to the nature and rate of the CGT (the ITA currently provides for CGT at the rate of 7.5% whereas the Finance Act provides for a rate of 5%) and the ITA contemplated CGT as a final tax whereas the Finance Act seems to require that CGT be implemented as a transaction tax, requiring stockbrokers to withhold, account for and remit the tax on completion of every transaction, a position KASIB states is impracticable given the nature of operation of the securities exchange/market; and
the provisions of the Finance Act relating to CGT have retrospective effect and thereby violate fundamental rights guaranteed by the Constitution especially with respect to the right to property.

The High Court held that:

the debate of the Bill, which re-introduced CGT, took place in accordance with relevant legal procedures and there was no violation of the principle of public participation in the circumstances of this case;
the provisions of the Finance Act reintroduced CGT at a rate of 5%. This was the clear legislative intent and thus implied the repeal of the provisions of the ITA (contained in the Eighth Schedule) that provided for CGT at a rate of 7.5%. Accordingly, the provisions of section 10(a) and section 23 of the Finance Act are not unconstitutional for being vague and contradictory; and
the provisions of the Finance Act require the charging to tax of a gain on transfers of property occurring on or after 1 January 2015 (whether or not the property was acquired before or after that date) as opposed to taxing gains realized before that date. The provisions are therefore not retrospective in effect and do not violate or threaten the right to property under the Constitution.

KENYA: Development of new Customs Management System

The Kenya Revenue Authority (KRA) announced that it is currently automating its operations through the development of a new customs management system (iCMS) to integrate with other KRA business systems and to adopt modern technology that will incorporate all customs processes. The system is expected to go live by June 2016.

MALAWI: Treaty with the Netherlands signed

Malawi signed a tax treaty with the Netherlands on 19 April 2015. The treaty provides for a 5% withholding tax on dividends if the receiving company owns at least 5% of the capital of the company paying the dividends, 10% withholding tax on interest and 5% withholding tax on interest.

MAURITIUS: FATCA reporting deadline announced for Mauritius-based financial institutions

The Mauritius Revenue Authority (MRA) published a communiqué on 20 April 2015, announcing that Mauritius-based financial institutions registered with the US Internal Revenue Service (IRS) for FATCA reporting purposes are required to submit FATCA information for year 2014 by 31 July 2015.

Mauritius-based financial institutions are required to register with the MRA through a dedicated website established by the MRA in order to use a web-based platform to submit FATCA information.

MAURITIUS: Luxembourg approves protocol to treaty

The Council of Ministers of Luxembourg on 2 April 2015 approved the amending protocol, signed on 28 January 2014, to the Luxembourg - Mauritius Income and Capital Tax Treaty (1995) and the protocol has been submitted to parliament for final approval.

MAURITIUS: Communique on capital gains tax released

The Mauritius Revenue Authority released a communiqué on taxation of capital gains from sales of shares and other securities, clarifying that capital gains are outside the scope of income tax. However, capital gains realized in the course of a business of trading in securities are taxable, except for companies holding a category 1 Global Business Licence which are tax exempt.

NIGER: New Investment Code introduced by Law

The Niger Council of Ministers on 10 April 2015, adopted a decree creating the Single Investment Code Office (Guichet Unique de Mise en Oeuvre du Code des Investissements), whose mission it is to implement the new investment code introduced by Law No. 2014/09 of 16 April 2014. The decree provides for the:

establishment of a special desk in charge of the new investment code's implementation under the Ministry of Mines and Industrial Development;
introduction of a period of 30 working days which must be observed by taxpayers for the granting of the accreditation to benefit from the investment code. This period runs as from the filing application request; and
implementation of a monitoring and control process.

NIGERIA: 2015/16 Budget proposals passed by Parliament

The 2015/16 Budget proposal, which was tabled in parliament on 18 December 2014, was passed by the parliament on 28 April 2015. However, the proposed increase in the value added tax (VAT) rate was not effected and the VAT rate thus remains at 5%.

NIGERIA: Tax Appeal Tribunal rules gas flaring fees tax deductible

A decision by the Lagos Tax Appeal Tribunal (TAT) of 17 March 2015 confirms that fees paid by an International Oil Company (IOC) for flaring gas in the course of its petroleum operations are tax deductible.

The IOC argued that the payments made for flaring gas were tax deductible under section 10(1) of the Petroleum Profits Tax Act (PPTA) on the basis that they were incurred wholly, exclusively and necessarily in the course of producing crude oil at a time when utilization and re-injection of the gas were not feasible.

The Federal Inland Revenue Service (FIRS) submitted that the Associated Gas Re-Injection Act (AGRA) discourages gas flaring, hence the requirement for certification to restrict it. According to FIRS, flaring gas without relevant certification violates the AGRA and thus, fees paid in relation thereto are not tax deductible under section 10(1) of the PPTA.

The TAT observed that provisions of the AGRA and the PPTA do not expressly require that a certificate be obtained before expenses incurred can be tax deductible, and that the AGRA contains and deals with procedural matters and penalties for illegal flaring.

Additionally, the IOC applied for certificates and made requisite payments to flare gas. The relevant body did not issue certificates or sanction the IOC for illegal flaring, and there was no evidence to this effect provided by the FIRS. Consequently, the TAT observed that the relevant body did not consider the flaring in this case illegal.

The TAT ruled that the fees paid by the IOC for flaring gas were tax deductible as they were not paid as penalty for illegal flaring.

NIGERIA: Luxury surcharge on private jets and air travel tickets implemented

The Minister for Finance and Coordinating Minister for the Economy issued a circular implementing the 2015 fiscal policy measures on luxury surcharges with effect from 11 February 2015. The circular imposes a surcharge of NGN 3,200 per kilogram (based on the weight of each aircraft) on all registered local and foreign private jets operating in Nigeria and a levy of NGN 15,000 on first class and business class international air travel tickets.

A luxury surcharge was one of the measures in the budget proposal presented to the National Assembly on 17 December 2014.

NIGERIA: Treaty with Spain enters into force

The Nigeria - Spain Income and Capital Tax Treaty (2009) will enter into force On 5 June 2015.

RWANDA: Treaty with Barbados and Singapore approved by Senate of Rwanda

The Senate of Rwanda approved the Barbados - Rwanda Income Tax Treaty (2014) and the Rwanda - Singapore Income Tax Treaty (2014) on 16 April 2015.

SEYCHELLES: FATCA reporting deadline announced

The Seychelles Revenue Commission (SRC) on April 2015 published a circular requiring financial institutions which have registered for FATCA purposes to report financial information to the SRC by no later than 30 June 2015 in the form of a data file compiled in accordance with FATCAXMLv1.1 schema. The first reporting period will cover the period from 1 July 2014 to 31 December 2014.

Financial institutions are encouraged to make any queries concerning this circular by 20 April 2015, after which a suitable date for the presentation of the relevant points of concern will be announced.

SEYCHELLES: Ruling on application of arm's length principle available for public comment

The SRC published a draft public ruling for the application of the arm's length principle in March 2015, which is available for public comment from 1 April to 15 April 2015. The draft ruling addresses:

the cases in which the Revenue Commissioner may make an adjustment to a transaction;
the criteria the Revenue Commissioner will consider when assessing if a person has entered into dealings which are considered at arm's length;
the transfer pricing methods and comparable factors which are considered most applicable by the Revenue Commissioner;
the cases in which the Revenue Commissioner will consider making a transfer pricing adjustment for service fees or for payments of an intangible asset; and
the transfer pricing documentation requirements.

SEYCHELLES: Ruling on deductibility of marketing and promotional expenses

The SRC published Public Ruling 2015-2 on 30 March 2015, clarifying the methodology of calculating the amount of expenditure that businesses are allowed to deduct under schedule 16 of the Tourism Act 2003 and section 2 of the eight schedule of the Business Tax Act 2009, including when certain persons/businesses may claim a 200% deduction of marketing and promotion expenses, when that marketing and promotion deduction will be limited to 10% of turnover instead and where such persons/businesses are unable to apply the general regime to such deductions

SEYCHELLES: Treaty with Guernsey ratified

Seychelles ratified the Guernsey - Seychelles Income Tax Treaty (2014), by way of Statutory Instrument No. 8, as published in the Official Gazette of 16 March 2015.

SWAZILAND: Various Practice Notes issued

Since November 2014, the Swazi Revenue Authority has issued the following practice notes:

Tax deduction directives in respect of lump-sum payments

Practice Note No. DT-IT/012-14 was issued In December 2014 in respect of the issuance of tax deduction directives by the Commissioner General for lump-sum payments to employees or former employees under section 58 (as further expounded by the Second Schedule) of the Income Tax Order 1975, as amended (the Order), clarifying the circumstances under which a tax deduction directive should be applied for, the timelines in respect of tax deduction directives and the tax treatment of lump-sum payments covered by tax deduction directives. The Practice Note took effect on 1 March 2015.

Advance payment of VAT

Practice Note No. DT-VAT/011-14 issued In November 2014 has the purpose to allow taxpayers who fall under either "Category A" (registered persons whose tax periods end on the last day of each month (monthly filers) and whose turnover is not less than SZL20 million per annum) and "Category B" (registered persons with a 3-month tax period (quarterly filers) whose annual turnover is less than SZL20 million) to pay VAT in advance on a monthly basis prior to the VAT returns due date with effect from 1 April 2015.

Definition and interpretation of proper books of accounts

Practice Note No. DT-VAT/IT 013-14 issued in November 2014 define what proper books are for purposes of section 51 of the Value Added Tax Act (the VAT Act) and section 35bis of the Income Tax Order 1975, as amended (the Order). The provisions require a taxable person to keep in Swaziland, at the place where the trade is carried on, original records either in English or SiSwati to enable ready ascertainment for tax purposes.

Recovery of taxes in cases of default

Practice Note No. DT-IT/015-14 issued in January 2015 outline the procedure in instances where there is a need to appoint agents for collection of taxes in cases of default in accordance with sections 49 and 59B of the Income Tax Order 1975, as amended (the Order), and section 45 of the Value Added Tax (VAT) Act.

The treatment of mortgage interest rebates

Practice Note No. DT-IT/014-14 issued in December 2014 provide guidance to employers on the treatment of rebates for mortgage interest, in respect of their employees, at the end of any year of assessment.

ZAMBIA: Treaty with Ireland signed

On 31 March 2015, the Ireland - Zambia Income Tax Treaty (2015) was signed, in Lusaka. Once in force and effective, the new treaty will replace the Ireland - Zambia Income Tax Treaty (1971).

ZAMBIA: Cabinet approves review of mining tax regime

On 13 April 2015 the Cabinet resolved that the controversial mining tax regime should be reviewed. This follows an earlier Presidential directive to the Ministers of Finance and Mines to come up with recommendations for the review of the regime. Zambia's cabinet confirmed changes to the mining tax regime on 20 April, which will see the royalty tax on open-pit mining fall from 20% to 9%. The royalty tax for underground mining will now also be 9%, which is a 1% increase from the 8% tax implemented in January 2015.

Before the January 2015 increase, which had drawn warnings of job losses and mine closures from Zambia's Chamber of Mines, the royalty tax on open pit mining stood at 6%. The government has also reinstated a 30% corporate income tax on earnings from mining operations, which was removed in January 2015 amid the higher royalties.

There will also be a 15% variable profit tax on income earned from mining operations when taxable income exceeds 8% of gross sales. Claims of losses will be limited to 50%.

ZIMBABWE: Agreement on mutual administrative assistance in customs matters with South Africa signed

On 8 April 2015, South Africa and Zimbabwe signed an agreement on mutual administrative assistance in custom matters, in Pretoria.

Sources include IBFD, IHS and other

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

South Africa: Africa Tax In Brief (4 May 2015)