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The Regional Analyses Africa

The Regional Analyses Africa

The regional analyses

At 52.9% Africa has the highest While Africa has a higher than average Total Tax Rate of average number of taxes, it is any . the lack of electronic filing in the region which contributes ‘Other’ taxes are the largest most to the difficulty of paying element of the Total Tax Rate taxes. In only 3 of the 53 for Africa while labour taxes economies do the majority of are the smallest part, which companies use electronic filing is the reverse of the global for all major taxes. picture. The elimination of cascading sales taxes While the average Total Tax is beginning to change Rate for the region has fallen this profile. significantly since 2004 (by 16 percentage points largely Africa has the second highest as a result of the replacement average for the time to comply of cascading sales taxes), the of 320 hours. reduction in the average time to comply has been more Consumption taxes (VAT) take moderate (28 hours) and the the most time in Africa – 127 fall in the average number hours on average. of payments has been small (2.3 payments). At 36.1 Africa has the highest average number of payments The most significant falls of any region. in the time to comply have been in labour taxes, though this has increased slightly in recent years.

34 Paying Taxes 2014. PwC commentary 52.9 320 36.1

Total Tax Time Number of Rate (%) (hours) payments

Nigeria article, page 44

Uganda Country article, page 48

South Africa Country article, page 46

The following economies are included in our analysis of Africa: ; ; ; ; ; ; ; Verde; Central African ; ; ; Congo, Dem. Rep.; Congo, Rep.; Côte d’Ivoire; ; , Arab Rep.; Equatorial ; ; ; ; Gambia, The; ; Guinea; Guinea-; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; São Tomé and Principe; ; ; ; ; South ; Sudan; Swaziland; ; ; ; ; ;

The regional analyses: Africa 35 Figure 3.11 The sub-indicator trends for Africa All three sub- indicators have Line: Time (hours) Bar: Total Tax Rate (%) fallen over the Bar: Number of payments nine years of the study 342 343 340 327 318 317 316 316 314

72.2 71.3 70.3 71.1 70.1 67.8

58.2 58.3 54.3

38.8 38.6 38.1 37.9 37.8 37.4 36.8 37.1 36.5

2004 2005 2006 2007 2008 2009 2010 2011 2012

The trend data in Figure 3.11 includes only those economies for which data is available for all years of the study and therefore the figures differ from the regional averages for 2012. The economies that are excluded are: Liberia, Libya, Source: PwC Paying Taxes 2014 analysis

The nine year trends in Africa 2012 this had dropped not just to below The fall in the Total Tax Rate from the Africa average, but also to below the 70.3% in 2004 to 54.3%18 in 2012 is the average. The time to comply in 29 most marked, with smaller reductions in economies around the region is above the time to comply and in the number of the world average with seven economies payments made. The 2012 average Total (Republic of Congo, Cameroon, Tax Rate for the region is well above Senegal, Mauritania, Chad, Libya and the world average, due in part to the Nigeria) having hours in excess of 600 continuing presence of cascading sales (over 15 weeks). taxes in Comoros and . As explained below, it is the replacement The average number of payments of cascading sales taxes by VAT that has for the region is also well above the contributed most to the drop in Total world average, yet over nine years Tax Rate for the region. it has dropped by only just over two payments. At the start of this period, The average time to comply in the the Central & Eastern Europe, African region has been consistently and Central America & the Caribbean above the world average since 2004 both had more tax payments and the gap between the two averages than Africa; both of these regions now has steadily increased over that have fewer payments than Africa. The period. As shown in Figure 3.11, the lack of availability of online filing and number of hours has reduced by just payment systems is the main reason for under 10% since 2004, though the the number of payments sub-indicator rate of reduction has slowed in recent being high. This is exacerbated by the years. Other regions have had more number of different taxes and the fact substantial reforms in the same period. that in many economies payments are For example, the Central Asia & Eastern made to several levels of government. Europe time to comply was 136 hours higher than Africa’s in 2004, but by

18 In this section the averages are calculated only for those economies that have been included in all nine years of the study to ensure that we represent a true trend. The trend data for 2012 will therefore differ from 2012 data which includes all economies. The economies excluded from the Africa region trend data are: Liberia, Libya and South Sudan

36 Paying Taxes 2014. PwC commentary The Total Tax Rate in Africa The cascading sales taxes still present The fall in Figure 3.12 shows how the Total Tax in Comoros and The Gambia (for Rate in Africa breaks down into the 2012) contribute heavily to the high Africa’s Total Tax three main components of profit taxes, proportion of sales and other taxes, Rate since 2004 labour taxes and other taxes. It shows which in turn leads to a high Total Tax how the rate of decline in the Total Tax Rate. Burundi, Djibouti, Mozambique, is largely due Rate varies between the three main Sierra Leone, Swaziland and, most to the abolition types of tax. Labour taxes account for a recently, the Democratic Republic of relatively small proportion of the Total the Congo have abolished cascading of cascading Tax Rate and the labour tax percentage tax systems and adopted a VAT system sales taxes has remained virtually flat since 2004 leading to the significant reduction in due to the small number of reforms the Total Tax Rate. If the two economies and the fact that while some economies that still have cascading sales taxes have decreased labour taxes, others were excluded from the regional have increased them. ‘Other’ taxes have average it would reduce to 46.1%. fallen noticeably, particularly in the last five years. While the trends for each of Looking across the Africa region, the types of tax are consistent with the corporate income tax is prominent in global trend, the profile of taxes is still the majority of economies while labour out of step, with ‘other’ taxes still being taxes and mandatory contributions are the largest component (rather than the relatively small. In three economies, the smallest at the global level) of the Total , Equatorial Tax Rate and labour taxes being the Guinea and the Republic of Congo, the smallest (rather than being the largest case study company must pay the higher as is seen for the global average). of a corporate income tax on profits or a minimum sales tax based on turnover. In all three cases the sales tax is higher than the profit tax and therefore the company pays no profit taxes. Nevertheless these economies still had high or fairly high Total Tax Rates of 87.6%, 44.1% and 63.8% respectively in 2012.

Figure 3.12 Trend in Total Tax Rate in Africa by type of tax

Total Tax Rate (%)

40

35

30

25

Other taxes

20 Profit taxes

Labour taxes 15

10

5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: PwC Paying Taxes 2014 analysis

The regional analyses: Africa 37 Figure 3.13 The fall in Total Significant movements in Total Tax Rate between 2011 and 2012 – Africa

Tax Rate in the Decrease Total Tax Rate Increase

Democratic Central African Republic 20.2

Republic of the Côte d’Ivoire 7.0 Congo dwarfs Niger 4.2 increases in Senegal 3.0 other economies Malawi 2.5

South Sudan 2.4

-2.6 South Africa

-10.5 Ghana

-221.0 Congo, Democratic Republic of

Source: PwC Paying Taxes 2014 analysis

Figure 3.13 shows the African • South Sudan, which features in the economies that have had the most study for the first time, increased its significant movement in Total Tax rate of corporate income tax from Rate between 2011 and 2012. Only 9 10% to 15%. Senegal also increased of the 53 African economies exhibited its corporate income tax rate from significant changes in the Total Tax 25% to 30%. Rate. The reforms affected profit, labour and ‘other’ taxes, but the • Malawi abolished its minimum reforms with the biggest impact on level of tax which was based on a Total Tax Rate were made to ‘other’ percentage of turnover, but this did taxes. In each of the three tax types not affect the case study company of tax some reforms reduced the Total as it was already paying corporate Tax Rate, while others increased it. income tax at a level above the Without the reduction in the Total threshold. The increase in Total Tax Rate recorded in the Democratic Tax Rate is largely explained by , the African an increase in the effective rate of average would have increased. employer pension contributions and changes in stamp duty on • The Democratic Republic of the property sales. Congo abolished its 15% cascading sales tax in 2012 replacing it with • The increase in Niger’s Total Tax VAT at 16%. Rate is largely due to the amount of depreciation on machinery that can • Ghana introduced a cap on be treated as tax deductible being employer and employee social halved from 20% to 10%. security contributions. The contributions are now levied • Côte d’Ivoire increased its Total Tax only on the first GHS20,000 Rate by increasing the rate of social (approximately USD10,000) of security contributions relating to salary per year. Previously the retirement and abolishing several contribution had been levied on the tax reliefs. full salary. • Finally, the largest increase in • The most significant change in Total Tax Rate occurred in the South Africa was the abolition of Central African Republic due its secondary tax on companies, to the introduction of a new which was replaced by a dividend environmental tax levied per tonne withholding tax of 15%. of waste produced. This increased the Total Tax Rate from 67.4% to 87.6%.

Africa average (37.0)

38 Paying Taxes 2014. PwC commentary Figure 3.14 The fall since Trend in time to comply in Africa by tax type 2004 in time to comply with Time to comply (hours) 140 Consumption tax obligations taxes in Africa has 120 been driven by Labour taxes reductions in the 100 time to comply Corporate with labour taxes 80 income tax

60

40

20

0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: PwC Paying Taxes 2014 analysis

The time to comply in Africa A number of economies have Figure 3.14 shows the breakdown in dramatically reduced the time required the time to comply since 2004 split by to comply, particularly for labour taxes. the type of tax. Consumption taxes In several cases the number of hours have consistently required the most required to comply with labour taxes time to comply. has dropped by over 100 hours in a single year due to a range of measures Over the last nine years, the average such as introducing online filing and time to comply in Africa has fallen payment, increased use of accounting by 28 hours with almost 60% of the software, consolidating tax offices to decline, the largest fall, coming from allow several taxes to be paid at the reductions in the time to comply same office and allowing several taxes with labour taxes which is consistent to be paid together. with the global trend. The difference between time to comply with labour In most years, however, only a and with consumption taxes has handful of economies have shown widened from 20 hours in 2004 to a significant change in the time to 29 hours in 2012. The time taken comply with labour, corporate income to comply for labour taxes is still or consumption taxes. Nevertheless, high when compared to the relative these changes are often so dramatic proportion of the Total Tax Rate that a change in just one economy can that is attributable to these taxes. noticeably affect the average for the This may be explained by the fact whole Africa region. that most economies levy not only a personal income tax, but also more than one social security contribution. In addition, most companies have to administer not only the labour taxes that they bear themselves, but also the taxes which are borne by the employees, but withheld by their employers.

The regional analyses: Africa 39 Figure 3.15 Five economies Significant movements in time to comply between 2011 and 2012 – Africa have reduced Decrease Time Increase their time to Guinea 24 1.3 3.0 4.0 8.3 comply by at least 1.6 3.2 8.3 13.1 -18 Madagascar 18 hours, while 1.8 10.4 5.4 17.6 -21 Rwanda 3.2 9.0 12.0 24.2 only Guinea’s 3.4 11.2 10.7 25.4 -22 Senegal time to comply 3.3 10.4 13.0 26.7 has increased -24 Cameroon 4.7 8.9 15.8 29.5 -32 Kenya 4.7 13.0 16.1 33.7 3.9 14.5 17.7 36.1 Source: PwC Paying Taxes 2014 analysis

The most significant movements • In its first reduction in time to in time to comply for the African comply since 2007, Senegal has economies are shown in Figure 3.15. reduced its time to comply by 22 hours to 644 hours. This is For the region as a whole in 2012, due largely to increased used of the time to comply for corporate accounting software. income, labour and consumption taxes reduced marginally due to • Already one of the most efficient reforms in five economies. None of the economies for paying tax in the economies, however, has experienced region, Rwanda reduced its time to the type of significant reforms that comply by a further 21 hours due to led to the dramatic reductions in the the extension of its electronic filing time to comply seen in some African systems. Since 2004, Rwanda has economies in earlier years. reduced its time to comply by nearly a third from 168 hours to 113 hours. The reasons for the movements are: • In 2012, electronic filing was made • In Kenya, an online filing system mandatory for all major taxes in was introduced in 2009, but Madagascar following increased recent upgrades to the system and taxpayer training in late 2011. This enhancements to the software have has reduced the time to comply by increased the impact. The time to 18 hours to 183 hours. comply has been steadily falling in Kenya from a peak of 432 hours in • The one increase in time to 2005 and 2006 to 308 in 2012. comply in the region for 2012 was Guinea; the time increased by 24 • Enhancements to electronic filing hours following the introduction and the use of electronic payments of a requirement to provide a for social security contributions supporting summary when filing have reduced the time required in VAT returns. Cameroon by 24 hours to 630 hours – which is still one of the highest in the region.

Africa average (37.0)

40 Paying Taxes 2014. PwC commentary Figure 3.16 The average Trend in the number of tax payments in Africa by tax type number of tax Number of payments payments has 20 fallen only Other taxes slightly across the African region since 2004, 15 Labour taxes mainly in respect of ‘other’ taxes and labour taxes. 10

5 Profit taxes

0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: PwC Paying Taxes 2014 analysis

The number of payments Although labour tax payments have in Africa declined across the region since 2004, Across the Africa region, the number only 10 economies had fewer labour of payments has declined slightly since tax payments in 2012 than in 2004, 2004 as shown in Figure 3.16. The while 3 economies had more payments. smallest decline is in profit taxes, with labour and ‘other’ taxes each declining There have been more changes to the by roughly one payment over the last number of payments for ‘other’ taxes, nine years. This pattern is consistent but these have led to both increases with the global trend. and decreases. Now 14 economies have a lower number of payments of ‘other’ Africa remains the region with the taxes than in 2004, with an average highest number of tax payments due drop of 6 payments per economy to a lack of availability of electronic where there has been a reduction. filing and payment, a large number of On the other hand, 7 economies have separate taxes, low availability of joint increased their payments of ‘other’ payments and the fact that taxes can taxes by an average of 2.9 payments often be levied by more than one level since 2004. of government.

In the region, 44 out of the 53 economies have more payments than the world average, with ‘other’ taxes accounting on average for half of the payments. Figure 3.17 Compared Significant movements in tax payments between 2011 and 2012 – Africa to 2011, five Decrease Payments Increase economies Malawi 5 had fewer tax South Sudan 4 payments in -1 South Africa 2012, while -1 Burkina Faso two had more -10 Mali payments. -11 Morocco

-12 Congo, Republic of

Source: PwC Paying Taxes 2014 analysis

Figure 3.17 shows the most significant • The number of tax payments in changes between 2011 and 2012 in the Mali has fallen by 10 to 35 as VAT number of tax payments made in the and apprenticeship tax can each be Africa region. It is worth noting that paid jointly with other taxes. these economies are different from those showing the greatest change • Burkina Faso and South Africa now in time to comply. This would seem both have one payment fewer. In to suggest that the reforms of the tax the case of Burkina Faso this is due compliance systems have not included to the abolition of a separate capital wholesale changes to both filing and gains tax and for South Africa it is payments. In two economies the due to the removal of the secondary reduction is due to the abolition of a tax on companies. tax, while the increase in Malawi is due to new taxes being introduced. • Malawi and South Sudan have both increased their number of tax The reasons for these significant payments. In Malawi this is due to changes are: a new tax on property transfers and to the pension contribution, which • In the Republic of Congo, four was introduced part way through labour taxes were merged into 2011, having been in place for all a single tax on salary taking the of 2012. In South Sudan advanced economy from having the second quarterly payments of corporate highest number of tax payments in income tax were introduced. the region to the ninth highest.

• Online filing has been available in Morocco for social security contributions since 2003, but it was only adopted by the majority of companies in 2012. This has led to a reduction in the number of tax payments as the tax has moved to being largely paid online. At six, Morocco now has the lowest number of payments in the region.

Africa average (37.0) 42 Paying Taxes 2014. PwC commentary The Total Tax Rate for the Africa region has fallen significantly since 2004 (by 16 percentage points largely as a result of the replacement of cascading sales taxes)

The regional analyses: Africa 43 Nigeria In need of a coordinated approach to tax reform

Taiwo Oyedele The Nigerian economy has been Over the years, the Nigerian growing steadily at about 5% per Government, especially through the PwC Nigeria annum for some years now. This Federal Inland Revenue Service and has raised the focus on the business the Joint Tax Board, has been making , including taxation. As efforts to reform the tax system Nigeria continues to seek ways to in a structured and coordinated diversify its economy and achieve manner. One such initiative was further development, government the development of a National Tax at all levels and the population Policy (NTP) aimed at simplifying recognise the importance of a the tax system, eliminating multiple dynamic tax system that is not only levels of taxation and ensuring geared towards fiscal growth, but tax transparency. addresses the sophistication of today’s business environment with the However, a new law, the Employee attendant complexities. Compensation Act, was enacted to introduce a compulsory monthly Taxation and fiscal policy matters payment by all employers. This new tax are therefore now of greater interest resulted in an increase in each of the and as the Nigerian Government and Paying Taxes sub-indicators – the Total regulatory agencies observe trends in Tax Rate, number of tax payments developed economies, they in turn are and the compliance time, hence the focusing their attention on enforcing downward trajectory for Nigeria on total compliance. On the other hand, the Paying Taxes rankings for the taxpayers are finding smarter and current year. better ways to manage their affairs to ensure full compliance at minimum cost, and to balance tax planning with corporate responsibility and long term sustainability.

44 Paying Taxes 2014. PwC commentary 33.8 956 47

Total Tax Time Number of Rate (%) (hours) payments

While the introduction of new taxes is Various tax incentives are being Overall, Nigeria is taking some positive one option for increasing tax revenues, introduced such as tax exemptions on steps to reform the tax system, but this should not be the main focus interest from all bonds and treasury to achieve the desired result in the as more could in fact be achieved bills for a period of 10 years. Incentives shortest possible time, these efforts through increased compliance with have also been granted for companies need to be coordinated rather than existing laws. We welcome any that provide infrastructure for public being implemented at cross purposes. measures that make tax systems more purposes and companies that employ The greatest fiscal incentive to efficient and easier to follow thereby inexperienced graduates and those businesses is simplicity and certainty of increasing compliance. that retain them for at least 2 years. the tax system. However, important legislative changes One positive step is the on-going that would make the incentives more effort to introduce an electronic tax effective have not been addressed, system called the Integrated Tax such as the law that imposes corporate Administration System (ITAS). The income tax on dividends distributed new system will automate tax filing out of tax exempt profits. and documentation of taxpayer information. Also, a new transfer The speed with which legislation is pricing regulation was introduced in passed also affects taxpayer certainty. 2012. While this is likely to increase There is a balance to be struck between the compliance time, it provides more ensuring that legislation is properly certainty to investors and is therefore scrutinised and giving companies expected to have an overall positive sufficient certainty on timing to impact on the tax system. allow them to properly plan for the introduction of new legislation. There There was also an improvement in the are a number of tax bills, including approach to tax dispute resolution. The the Petroleum Industry Bill, that are government speedily reconstituted currently pending leading to increased the tax appeal tribunal tasked with uncertainty among taxpayers. the role of adjudicating over disputes arising from the operations of all tax laws and regulations. This is a marked improvement from the past where the tax appeal tribunal was not constituted for a long time leaving many tax cases unresolved for many years.

The regional analyses: Africa 45 South Africa Paying taxes expected to become more difficult, after years of improvements

Paul de Chalain South Africa’s Total Tax Rate saw a The time taken for companies to significant reduction in 2012, falling comply with their tax obligations PwC South Africa to 30.1% in the current study. This has been on a declining trend since reduction is primarily due to South e-filing was introduced in 2003. Africa replacing the secondary tax Continued improvements have been on companies, which was levied on made over the years, including the a company declaring a dividend, ability to file a single monthly return with a dividends tax that is levied on for a number of payroll taxes and the shareholder. The Total Tax Rate reduced requirements for submitting has also reduced substantially from supporting information with corporate 37.6% in 2004. There are currently no income tax returns. However, some of proposals that could lead to further these gains are expected to be eroded significant changes in the Total Tax for a variety of reasons. The South Rate in the short term. In the medium African Revenue Service (SARS) has term, however, there are two changes reversed the trend for the provision worth mentioning. The proposed of less information and has now National Health Insurance could introduced a number of measures significantly increase the Total Tax which will increase the compliance Rate of the case study company in the burden on taxpayers. These measures near future, but this will depend on include the introduction of a new how it is proposed to be funded. corporate income tax return in 2013 with enhanced disclosure Also, it is proposed that a carbon tax be requirements; the introduction of a introduced in 2015 which could see the supplementary income tax return tax burden on companies that are liable whereby companies may be required to for that tax increasing significantly, reconcile accounting profits, corporate although the carbon tax would not income tax profits, payroll taxes and affect the Total Tax Rate of the Paying indirect taxes; and onerous compliance Taxes case study company. requirements were introduced along with the new dividends tax. Certain taxpayers, most notably banks, are now also subject to onerous new requirements to provide third party information to SARS. Add to the above the proposed new withholding taxes on interest paid to non-residents to be introduced in 2015, and the medium term outlook for the compliance burden on companies does not look rosy.

46 Paying Taxes 2014. PwC commentary 30.1 200 7

Total Tax Time Number of Rate (%) (hours) payments

Many of these changes can be In addition, many corporates report a attributed to the pressure that tax marked increase in SARS inquiry and revenues are under and concerns with audit activity. The tax administration the protection of the South African tax landscape in South Africa is therefore base. To this end, South Africa is no going through a significant period different from many other of change. and has recently undertaken, or signalled an intention to undertake, Many of these changes do not affect the a number of other steps to protect its case study company given its assumed tax base. attributes; however, they do serve to illustrate the creeping compliance These steps include: burden that many companies will be experiencing. • reform of transfer pricing legislation • hybrid debt and equity rules • extending exit charges in connection with the migration of tax jurisdiction • refining controlled foreign company legislation • proposed rules for excessive interest • requirements for suppliers of digital services to register for VAT in South Africa • renegotiation of tax treaties, and • negotiation of numerous bilateral and multilateral mutual assistance and exchange of information agreements.

The regional analyses: Africa 47 Uganda Looking to increase tax revenues without adding to the administrative burden

Robert Nsereko Uganda’s ranking now at 98 out of the On the administrative side, the 189 economies covered by the study Uganda Revenue Authority (URA) PwC Uganda on Paying Taxes, remains ahead of the has implemented measures to reduce rest of the region except the time it takes a taxpayer to comply for Rwanda. with the law. These include; improved access to the URA customer service The time taken to comply with taxes channels like email and SMS alerts; in Uganda has improved a little in a dedicated help desk for handling the most recent period, and is better taxpayer queries; introduction of than the average for Sub Saharan flexible working hours during deadline Africa which is now at 314 hours. filing days through the extension of This position can partly be explained working hours to assist taxpayers by the efforts of the Government of who encounter any difficulties. Even Uganda to make paying taxes much when filing days fall on weekends, easier through both legislative and URA teams are available to help. administrative reforms. The tax administration has also introduced practical learning sessions for newly registered tax payers to equip them with hands-on knowledge around navigating the online filing system. This is truly commendable and we expect to see even more initiatives introduced in future, as tax administration becomes even more complex.

48 Paying Taxes 2014. PwC commentary 36.6 209 31

Total Tax Time Number of Rate (%) (hours) payments

However, in a bid to increase domestic Over the years, the Government has tax revenues, it should be noted continued to put in place measures that the URA has now introduced aimed at improving the tax regime additional requirements for transfer including the restructuring of the pricing information which will place City Council Authority an additional burden on business and the Uganda Registrations (although in view of the Paying Taxes Services Bureau. It is expected that case study company fact pattern this all these efforts, coupled with better will not be reflected in thePaying Taxes collaboration between different sub-indicators). Coupled with this, is departments, will continue to make the ability of the online filing system taxes easier to pay in Uganda to cope with heavy user traffic during peak times especially towards filing Overall, while there is still more room deadlines. The URA will therefore for improvement, it is important to need to find more innovative ways of recognise the positive steps taken by increasing domestic revenue without the URA to become more taxpayer hampering the gains made so far in centric. It is hoped that such measures improving compliance time. will have a positive impact on the ease of paying taxes in Uganda and On the legislative side, during the most importantly to help sustain the 2013/14 annual budget speech, the increase in revenue collection which Government proposed increased has been seen over the years. The collaboration between government Government’s target to raise 80% of departments and the tax authority by its 2013/14 budget financing from improving the sharing of information domestic revenue is an ambitious aimed at improving compliance target and its realisation will partly with the tax system. Furthermore, be supported by continuous efforts in the mandate to collect all dues and easing the process of compliance. charges was passed to the URA from the Uganda Registration Bureau. This is expected to improve how easy it is to pay tax as the URA has better tax collection systems compared to any other Government department.

The regional analyses: Africa 49

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