Taxes put companies at risk in Africa

Doing business in
Africa comes with a
number of challenges,
many of which are
predictable and manageable.
Hauliers know what the state
of the roads is, and their drivers
know how to navigate around
the potholes.
Natural disasters create
challenges of their own, but the
logistics industry has proven
that it can deliver goods and
move freight under the most
difficult physical conditions.
What is, however, out of
the control of the country
managers and business owners
is the actions of the revenue
authorities.
Border delays by inefficient
and/or corrupt customs systems
have been well documented.
What is not as well
understood is the corporate
tax regime, which varies from
country to country and is
subject to constant revision.
From a government
perspective there is an urgent
and ongoing need to collect
revenue.
About half of the countries
of sub-Saharan Africa can be
categorised as fragile states.
With some exceptions (mainly
oil producers), tax revenues in
fragile states are typically less
than 20% of GDP, ref lecting the
low levels of formalisation of the
economy and weaknesses in tax
administration.
Key objectives of tax reform
in fragile states are to boost
budget revenues to fund a
rebuilding of public services, to
support sustainable economic
growth and to contribute to
better governance, according
to a study by African Economic
Outlook.
Politically and practically
the first place to look for more
revenue is the business sector.
“What our clients experience
while doing business in
Africa led to some very
interesting results in our
Tax in Africa survey,” says
PricewaterhouseCoopers (PwC)
in its 2014 Africa Tax Survey.
“The most significant findings
confirm that doing business on
the African continent is still a
fairly large challenge.
“In particular, areas such
as obtaining certainty around
the application of legislation
and discussing/
negotiating
with the tax
authorities remain challenging.
“Another interesting
conclusion is that tax is still
considered to be one of the
primary constraints to doing
business in Africa.
“This is a unique challenge
since business considerations
should ideally be leading
decision making, with tax
matters following as a mere
formality,” says PwC.
Taxes are also seen as a
risk by the UK Foreign and
Commonwealth Office.
In its country briefing
on Namibia, for example, it
warns that “withholding tax in
Namibia places an increasing
tax burden on multinationals
that provide business consulting
services to Namibian entities”.
Mining companies, with
UK dominance, are taxed at
a rate of 37.5% for hard-rock
mining and 55% for diamond
mining. Petroleum exploration
and production companies are
taxed at a basic rate of 35% plus
additional profit calculated tax.
Namibia was not, however,
seen as being particularly
challenging from a tax
perspective by the respondents
to the PwC survey.
They ranked Nigeria first,
followed by Tanzania, Angola
and South Africa overall in a
combined ranking of “most
difficult, second most-difficult
and third most-difficult.”
Many of the problems are
due to tax authorities simply
not understanding the business
environment.
In Nigeria, for example,
respondents cited a lack of
knowledge by officials about
the realities of how businesses
actually operate.
For instance, authorities
usually refund tax
receivables only after
having audited the
company’s figures, while
the cash inf low is very
important for the company.
Zambian authorities are
at loggerheads with the
mining companies over the
withholding of VAT refunds
estimated at around
US$600 million.
The government is
insisting that companies
produce a certificate of
shipment and tax invoices
from the country of
origin/destination.
Forwarders and
clearing houses
interviewed by FTW
say this is virtually
impossible because of the
nature of the commodities
industry, where copper
is purchased at source by
traders and then sold on
to multiple customers and
destinations.