AFRICA: Africa Tax Administration Forum revises Pillar One Proposals
The African Tax Administration Forum (“ATAF”) has sent revised Pillar One proposals to the OECD Inclusive Framework, responding to both the Inclusive Framework Blueprint Report released for public consultation in October 2020 and the recent US proposals to revise the blueprint proposals.
Elements of the ATAF proposal are similar to the US recommendations. For instance, both proposals bring all business sectors (except those excluded in the Pillar One Blueprint) into the scope of Amount A and exclude differentiation in profit allocation between Automated Digital Services and Consumer Facing Businesses.
ATAF proposes a single global threshold rule for all multinational enterprises (“MNEs”) generating global sales revenue above a certain amount, irrespective of their business activities, but still subject to the proposed Pillar One Blueprint exclusions. It is of the view that the Amount A proposal which is based on a single market revenue threshold for all economies is complex, inequitable and would result in very little reallocation of taxing rights to market jurisdictions, especially smaller ones. According to ATAF, its proposal would address the complexities of the global threshold rule and with its simplification the threshold could be lowered to EUR250-million.
ATAF also recommends that the reallocation of profits, which it refers to as “Amount D”, be calculated as a portion of the MNE’s total profits instead of its residual profit. Amount D is to be allocated to a market jurisdiction to the extent it exceeds the arm’s length profits reported in the market jurisdiction for the relevant period.
BOTSWANA: Convention and Protocol on Mutual Administrative Assistance in Tax Matters enter into force
The multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol, will enter into force in respect of Botswana on 1 October 2021, following Botswana depositing its instrument of ratification with the OECD on 15 June 2021. The convention and the amending protocol will generally apply from 1 July 2022 for Botswana.
BOTSWANA: Income Tax and VAT Penalties and Interest Amnesty Regulations promulgated
The Minister of Finance has promulgated the Income Tax and VAT Penalties and Interest Amnesty Regulations of 2021 in the Extraordinary Gazette of 8 June 2021 and the Botswana Unified Revenue Service subsequently published related guidelines for the amnesty period running from 1 July 2021 to 31 December 2021.
The guidelines cover eligible penalties and interest, eligible taxpayers and procedures for eligible taxpayers.
GABON: Tax treaty with Saudi Arabia enters into force
The Gabon/Saudi Arabia Income Tax Treaty (2015) entered into force on 1 February 2021 and generally applies from 1 January 2022.
IVORY COAST: Meat temporarily exempted from VAT
The General Tax Director issued Circular No. 2140/MBPE/DGD of 19 February 2021, which suspended the application of the 9% value-added tax (“VAT”) reduced rate to meat and offal imported from outside of the Economic Community of West African States (ECOWAS). These products will be exempt from VAT until further notice.
KENYA: Tax laws amended to broaden tax base
Kenya announced various amendments to tax laws in the Finance Bill, 2021 which was presented for first reading in the National Assembly on 5 May 2021. It is expected that parliament will seek stakeholder and public comments before enactment. Once the public consultation period ends, the Bill will be resubmitted by treasury to parliament before it is signed into law by end of June 2021. Unless indicated otherwise, amendments will generally come into effect on 1 July 2021.
Significant amendments include:
- expanding the definition of a permanent establishment to include aspects of anti-fragmentation;
- extending the scope of taxation on the digital marketplace to cover business carried out over the Internet or an electronic network;
- restricting the liability to digital service tax (“DST”) to only non-residents on income arising from the business of transmitting messages by cable, radio, optical fibre, television broadcasting, very small aperture terminal, the Internet, satellite or by any other similar method of communication that is chargeable;
- not levying DST on income subject to withholding tax;
- allowing for the indefinite carry-forward of losses (previously nine years after the year of income in which they arose);
- introducing a limitation of interest deductibility rule where the deductible interest expense is limited to 30% of the earnings before interest, taxes, depreciation and amortization (EBITDA). The current thin capitalisation rule that restricted interest deduction to a debt to equity ratio of 3:1 where the entity is foreign controlled is being repealed;
- introducing country-by-country reporting provisions in terms of which the ultimate parent entity of multinational enterprises, that are resident in Kenya, are required to submit to the commissioner a return describing the group’s financial activities where its gross turnover exceeds the prescribed threshold (yet to be set), and in all other jurisdictions where the group has a taxable presence;
- expanding the rebate available to employers that provide apprenticeships to at least 10 university graduates for a period of 6-12 months to also apply to graduates of technical and vocational education and training institutions;
- amending the beneficial ownership rule restricting benefits under treaties to entities where at least 50% of the underlying ownership is held by an individual/(s) who are resident of the other contracting state to allow 50% of the underlying ownership to be persons who are resident of the other contracting state;
- requiring capital allowances, currently calculated on a reducing balance basis, to be calculated on a straight-line basis;
- amending the rate of withholding tax on payments made by licensees and contractors for service fees to non-residents sub-contractors in respect of mining or petroleum operations; and for management, training and professional fees to non-residents to 10%. The current rate of withholding tax on service fees is 5.625% while that of management, training and professional fees is 12.5%.
- expanding the scope of taxation on digital marketplace to cover business carried out over the Internet or an electronic network;
- applying reverse VAT on imported services to both registered and non-registered persons;
- extending the restriction on claiming tax on acquisition of passenger cars or minibuses, to the leasing and hiring of such vehicles;
- scrapping the provision in the VAT Act allowing the cabinet secretary to provide for the registration of a group of companies as one registered person for VAT purposes;
- scrapping the current exemption available to inter alia disposal plastic syringes, other syringes, certain types of paper and plain polythene film;
- exempting from VAT (upon approval by the relevant cabinet secretary):
- taxable goods, excluding motor vehicles, imported or purchased for direct and exclusive use in geothermal, oil or mining prospecting or exploration by a company granted a prospecting or exploration licence; and
- specialised equipment for the development and generation of solar and wind energy, including photovoltaic modules, direct current charge controllers, direct current inverters and deep cycle batteries that use or store solar power;
- exempting from VAT goods supplied to persons that had an agreement or contract with the government prior to 25 April 2020 and the agreement or contract provided for exemption from VAT. This exemption will apply to the unexpired period of the contract or agreement and upon recommendation by the cabinet secretary responsible for matters relating to energy;
- exempting from VAT, inter alia, powdered milk, protein concentrates, infant food preparations, food supplements, vitamin C, malaria diagnostic test kits, orthopaedic or fracture appliances;
- exempting form VAT, upon the approval of the Health Cabinet Secretary, inter alia, medical ventilators, physiotherapy accessories, certain diagnostic or laboratory reagents, ozone therapy, artificial teeth and dental fittings;
- adding the exportation of taxable services to the list of exempt services. These services are currently zero-rated.
- increasing the maximum reward for information leading to the identification of unassessed taxes from KES100 000 to KES500 000 and for information leading to recovery of taxes from KES2-million to KES5-million;
- requiring persons subject to DST to submit a return and pay the tax due before the 20th day of the month following the end of the month in which the digital service was offered;
- introducing common reporting standard obligations for the automatic exchange of financial account information by financial institutions;
- extending the period for retention of records from five to seven years;
- increasing the period within which assessments may be amended by the Commissioner General of the Kenya Revenue Authority from five to seven years;
- allowing the unit of currency in books of account, records, paper registers, tax returns or tax invoices in respect of a non-resident persons (without resident personal representatives and permanent establishments) carrying on business through a digital marketplace to be in convertible foreign currency as may be approved by the commissioner;
- deleting the provision giving the option to qualifying suppliers to apply to the commissioner for exemption from the provision of withholding VAT;
- providing that in cases where the commissioner ascertains that there is a tax refund and notifies a taxpayer of the same, and the refund due is utilised to offset other outstanding taxes, the interest and penalties on the outstanding taxes due will no longer accrue from the date the commissioner informs the taxpayer;
- introducing penalties for non-compliance with the common reporting standard obligations; and
- allowing the commissioner to seek the intervention of a relevant authority in the collection of tax where a person who provides services over the Internet or an electronic network including through a digital marketplace has not fulfilled their tax obligations.
KENYA: Tax Appeals Tribunal holds taxpayer must apply for refund of overpaid tax
The Tax Appeals Tribunal (“TAT”), on 13 May 2021, in the case National Bank of Kenya Ltd. (“NBK”) v. Commissioner of Domestic Taxes (the “Commissioner”)) [Appeal No. 474 of 2020], held that the offsetting of overpaid tax is not automatic, as a taxpayer must first apply for a refund of this overpaid tax as provided for under section 47 of the Tax Procedures Act (“TPA”).
In the case at hand, NBK claimed to have tax overpayments brought forward from 2014-2018, which it intended to utilise to offset its subsequent years’ tax liabilities. The online portal for filing the returns did not provide a field in which to file tax credits, therefore NBK Ltd filed the credits in the portal as “credit under special arrangement”, which covers arrangements for the relief of double taxation.
The Commissioner disallowed the credits in 2016, 2017 and 2018, as it was of the view that the credits were only claimable under section 47 of the TPA, as a refund. Only after the refund was verified would the taxpayer then be allowed to carry forward and offset such overpaid taxes.
NBK Ltd argued that section 47 of the TPA titled “refund of overpaid tax” should not apply where the taxpayer does not wish to have the overpaid tax refunded but instead wants to offset against other tax liabilities.
The TAT ruled that:
- the Commissioner was right in disallowing the credit for overpaid tax since section 42 only applied where foreign tax was payable in respect of income earned under a special arrangement; and
- overpayment should be treated in line with the refund provisions under section 47 of the TPA and NBK, therefore, cannot use the alleged overpayment without going through the validation process set out under section 47 of the TPA.
MALAWI: 2021/2020 Budget presented to the National Assembly
The Minister of Finance presented the 2021/2022 Budget to the National Assembly on 28 May 2021, proposing various tax amendments. The proposed changes to VAT and income tax are to take effect on 1 July 2021 once the relevant bills have been approved by the National Assembly. Significant proposed amendments include:
- introducing a presumptive tax regime for small businesses whose turnover does not exceed MWK12.5-million;
- increasing the number of individual tax rate bands by two to ensure that high-income earners pay more tax. Individuals will be subject to tax annually as follows:
MALAWI: Tax Administration Bill, 2021 and Revenue Appeals Tribunal Bill, 2021 gazettedincreasing the VAT registration threshold from MWK10-million to MWK25-million;
- zero-rating the following supplies for VAT purposes: fuel ethanol; printed books; text books; and fish feed;
- exempting the following supplies from VAT: supplies for fish production, raw materials for medicament, pharmaceuticals, medical equipment, printing and publishing of books, agricultural and horticultural sprayers mounted on tractors;
- introducing an annual duty-free week for imports not exceeding USD3 000 to boost small businesses and facilitate economic recovery from the effects of the COVID-19 pandemic. The dates for the duty-free week will be gazetted within the year;
- reducing the validity period for invoices used to claim input VAT from 12 to 6 months;
- making tax clearance certificates mandatory for application and renewal of trading and professional licences;
- introducing withholding on imports as an advance income tax for importers without a valid tax clearance certificate; and
- making taxpayer identification numbers mandatory for opening and operating any bank account in Malawi.
The parliament of Malawi on 28 May 2021 gazetted:
- the Tax Administration Bill, 2021, aimed at providing a common set of simplified rules for administration of written tax laws with the arm of promoting a business approach to tax administration. The Bill also provides for payment and recovery of taxes, treaty override rules, dispute resolution, licensing and registration of tax practitioners, tax refunds, interest, penalties and offences; and
- the Revenue Appeals Tribunal Bill, 2021 which seeks to provide for the establishment of a Revenue Appeals Tribunal, aimed at providing a streamlined and specialized forum for the resolution of disputes arising out of determinations of the Commissioner General in relation to revenue collection.
MAURITIUS: 2021/2022 Budget presented to parliament
The Mauritius Minister of Finance, Economic Planning, and Development presented the 2021-2022 Budget Speech to parliament on 11 June 2021. Significant proposals include:
- allowing as a tax deduction the amount contributed by individuals and enterprises to the COVID-19 Vaccination Programme Fund, with any unrelieved deduction to be allowed to be carried forward for a maximum period of two successive income years;
- allowing manufacturing companies a double tax deduction in respect of expenditure incurred for market research and product development targeting the African market;
- amending the tax treatment of foreigners under the Premium Visa Scheme with retroactive effect from 1 November 2020, including that a holder of a Premium Visa, spending 183 days or more in Mauritius, to tax Mauritian-sourced income of a Premium Visa Holder on a remittance basis;
- extending the five-year tax holiday (exemption) on emoluments of qualifying asset/fund managers by an additional five years for holders of certificates issued on or after 1 September 2016, while new certificate holders will be eligible to a tax holiday of 10 years, with the minimum required managed asset base being reduced from USD100-million to USD50-million;
- clarifying that any unrelieved investment tax credit of a manufacturing company may be carried forward for 10 years;
- clarifying that small enterprises opting to pay the presumptive tax of 1% of turnover are exempted from the corporate social responsibility obligation;
- extending the list of priority areas of intervention for which companies can use 25% of their CRS funds to include the restoration of a building designated as a national heritage under the National Heritage Fund Act 2003;
- disallowing the levy paid by gambling operators as per the Gambling Regulatory Authority Act as a deduction for income tax purposes;
- reducing tax on the transfer of leasehold rights from the current tax rate of 20% payable equally by the buyer (10%) and the seller (10%) to 5% each for a period of years starting as from 1 July 2021; and
- measures for a new incentives framework for companies registered with the Economic Development Board.
NIGERIA: Guidelines on the validation of unutilised withholding tax credit notes issued
The Federal Inland Revenue Service (“FIRS”) has issued an Information Circular No.: 2021/07 (“the Circular”) providing guidelines on the validation of unutilised withholding tax credit notes, pursuant to the provisions of section 25(4) of the FIRS Establishment Act, 2007.
As per the Circular, taxpayers with unutilised WHT credit notes for periods up to 31 May 2020 are required to submit such credit notes to their respective tax offices between 1 April 2021 and 30 June 2021 for validation and upload to the FIRS online filing portal – TaxPro-Max portal.
NIGERIA: Guidelines for filing naira-denominated tax returns on TaxPro-Max e-filing platform issued
The FIRS issued a Public Notice providing guidelines on the administration of its TaxPro-Max e-filing platform on 4 June 2021.
With effect from 7 June 2021, taxpayers are required to submit all naira-denominated tax returns on the platform, using a document identity number generated by the platform to pay their tax liabilities.
NIGERIA: LIRS issues public notice on amendments to the Personal Income Tax Act
The Lagos State Internal Revenue Service (“LIRS”) has issued a Public Notice providing clarification on the revised definition of gross income and the exemption of minimum wage or lower employment income from personal income tax pursuant to the amendments introduced by Finance Act, 2020 to the Personal Income Tax Act (“PITA”).
As per the definition of gross income in Section 33(2) of PITA, taxpayers are required to deduct tax-exempt items listed in paragraph 2 of the Sixth Schedule, non-taxable income, and all allowable business expenses and capital allowance, in determining the applicable gross income for computing consolidated relief allowance. However, these items will still qualify for deduction in determining the chargeable income.
Further, section 37 of PITA exempts individuals earning the national monthly minimum wage of NGN30 000 or less from the payment of PIT. The Public Notice, however, provides that any additional income earned by taxable persons on national minimum wage from other sources, excluding salaried employment, will be subject to personal income tax
NIGERIA: Implementation of Regulation 4 of the Income Tax (Country-by-Country Reporting) Regulations, 2018 suspended
The FIRST recently issued a Public Notice suspending the local filing obligations under Regulation 4 of the Income Tax (Country-by-Country (“CbC”) Reporting) Regulations, 2018 for branches and subsidiaries of Multinational Enterprises (“MNEs”) operating in Nigeria.
Regulation 4 requires branches and subsidiaries of MNEs operating in Nigeria to submit their CbC Returns to the FIRS, where no Automatic Exchange of Information exists between Nigeria and the Ultimate Parent Entity (“UPE”)’s country of residence. Therefore, with the announced suspension, affected MNEs are no longer obligated to submit such information to the FIRS.
However, the suspension of Regulation 4 does not affect members of MNEs whose UPE or Surrogate Parent Entity is resident in Nigeria from filing their CbC reports in Nigeria and does not preclude all relevant entities from continued compliance with other obligations, including the filing of annual CbC notification, provided under the Regulations.
RWANDA: COVID-19 pandemic: Deadline for filing certified financial statements further extended
On 31 May 2021 the Rwanda Revenue Authority (“RRA”) announced a further extension of the deadline for filing certified financial statements (originally 31 March) to 30 June 2021 citing challenges facing audit firms and taxpayers in certifying financial statements while complying with the measures put in place to contain the COVID-19 pandemic.
RWANDA: COVID-19 pandemic: Guidelines issued on computation of income tax quarterly pre-payments
The RRA on 9 June 2021 announced new guidelines for computing income tax quarterly pre-payments in an attempt to support businesses to recover from the effects of the COVID-19 pandemic.
As per the new guidelines, quarterly pre-payments are to be computed based on the actual sales of the months of the relevant quarter, as opposed to 25% of the tax liability as calculated in the tax declaration of the previous tax year.
RWANDA: Country commits to signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters
Following the meeting between the Kigali International Financial Centre and the Rwandan ambassador to France, the Rwandan government has made a commitment to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in the coming months.
RWANDA: Tax treaty with Turkey enters into force
The Rwanda / Turkey Income Tax Treaty (2018) entered into force on 21 October 2020 and generally applies from 1 January 2021.
RWANDA: Tax Authority to provide electronic invoicing systems to taxpayers
In an announcement of 14 May 2021, the RRA urged taxpayers to apply for the appropriate electronic invoicing system depending on the business of the taxpayer. Different electronic invoicing systems will be provided to different taxpayers as follows:
- an electronic billing machine (“EBM”) software which is specifically designed for large and medium taxpayers as well as other taxpayers who may apply for it;
- an EBM mobile system which is available for taxpayers whose turnover does not exceed RWF20-million; and
- an online EBM solution for taxpayers in the service industry such as lawyers and consultants whose turnover does not exceed RWF20-million.
TANZANIA: 2021/22 Budget presented Parliament
Tanzania’s 2021/22 budget was presented to parliament on 10 June 2021, proposing various amendments to tax laws. Significant amendments include:
- reducing employer’s contribution to the workers compensation fund from 1% to 0.6%;
- exempting non-governmental organisation projects with whom the government has a memorandum of understanding from VAT;
- removing the 100% penalty on transfer pricing adjustments introduced by the transfer pricing regulation 2018;
- empowering the Commissioner General of the Tanzania Revenue Authority to waive penalties and interest without consultation with the Minister of Finance.
UGANDA: Government approves tax law amendments
The Income Tax (Amendment) Act 2021 was assented to by the president on 29 May 2021, whereas the Tax Procedures Code (Amendment) Act 2021 and the Mining (Amendment) Act 2021 were assented to by the president 31 and 18 May 2021 respectively.
The VAT (Amendment) Act 2021, the Excise Duty (Amendment) Act 2021, and the Stamp Duty (Amendment) Act 2021 were assented to by the president on 18, 20 and 29 May 2021 respectively.