IBFD Tax Policy Trend in Africa - IBFD Your Portal to ... · PDF fileIBFD Tax Policy Trend in Africa ... after independence – unlike many other former ... while the National Assembly

www.ibfd.orgIBFD, Your Portal to Cross-Border Tax ExpertiseIBFD, Your Portal to Cross-Border Tax Expertise

IBFD Tax Policy Trend in AfricaCommentary on the Major Tax Developments of 2013

By the: Africa, Middle East and Latin America Knowledge Group of the IBFD

X Kennedy Munyandi - Manager (Lead Author)

X Ridha Hamzaoui - Principal Research Associate (Author)

X Carlos Gutiérrez Puente - Principal Research Associate (Author)

X Lydia Ogazón - Senior Research Associate (Author)

X Anapaula Trindade Marinho - Research Associate (Author)

X Monica Montes - Research Associate (Author)

X Max-Nathan Punter - Secretary (Secretarial and statistics)

Date: September 2014

2

Tax Policy Trend in AfricaIBFD, Your Portal to Cross-Border Tax Expertise

Index

1. Introduction

2. Tax Treaty Developments

2.1. Income tax treaties

2.2. Tax information exchange agreements

2.3. Administrative assistance

2.4. Comments and outlook

3. Natural Resource Taxation Measures

3.1. General

3.2. Tax rates

3.3. Tax incentives

3.4. Tax on capital gains/transfer of mineral rights

3.5. Other tax measures


4. Changes in Anti-Avoidance Rules

4.1. General anti-avoidance rules introduced

4.2. Specific anti-avoidance rules introduced


5. Tax Incentives Policy Changes

5.1. Partial review of tax incentives regimes

5.2. Comprehensive review of tax incentives regimes

5.3. Incentives for small and medium-sized enterprises introduced

5.4. Financial tax incentives introduced

5.5. Other industry-specific incentives introduced

5.6. Free economic zones introduced

5.7. Green energy incentives introduced

5.8 Comments and outlook

6. Changes in Tax Rates

6.1. Corporate tax rates

6.2. Personal income tax rates

6.3. Value added tax rate


7. Special Case: Zimbabwe’s Change in Basis of Taxation

7.1. Background to the change

7.2. Arguments for a residence-based tax system

7.3. Arguments for a source-based tax system

7.4. Definition of residence

8. Tax Harmonization and Regional Integration

8.1. Dynamism in the ECOWAS

8.2. Birth of community law in the COMESA

8.3. Movement towards a monetary union in the EAC

8.4. COMESA-EAC-SADC tripartite free trade area negotiations

8.5. Sluggish integration process in other RECs


9. Conclusion

3


1. Introduction

This paper is a commentary on the major tax policy developments that took place in Africa in 2013. Most of

the tax developments discussed are as reported by the Tax News Service1 of the International Bureau of Fiscal

Documentation (IBFD) for the same year.

The aim of the paper is to provide an analysis of the tax changes, both on a theoretical basis and on global tax

policy trends. Finally, the paper attempts to provide an outlook of the African tax policy.

2. Tax Treaty Developments

2.1. Income tax treaties

During 2013, a number of comprehensive inter and intra-African income tax treaties either entered into force,

were concluded (i.e. initialled or signed), (re-)negotiated or terminated. Table 1 below provides a comparative

summary for the calendar years 2012 and 2013.

There were slightly over double the number of tax treaties (re-)negotiated in 2013 compared to the preceding

year. The most active countries were Kenya (6), Mauritius (7), Morocco (4) and Seychelles (4).

Angola, which has yet to enter into a tax treaty, resumed treaty negotiations with Portugal2.

A total of four inter-African tax treaties were replaced during 2013. These are the Malawi-Norway, Mauritius-

Germany, Mauritius-Sweden and Morocco-Finland tax treaties. This is possibly an indication that African

countries are striving to modernize their tax treaties.

The modernization of tax treaties has, however, not always been at the initiative of African countries but that of

developed countries. For example, in 2013 the Netherlands indicated that it “will suggest to Zambia that the

treaty, dating from 1977, be renegotiated and that anti-abuse provisions be included in the new treaty” and that

it “will also approach the other low-income countries and low middle-income countries to see if they wish to

add anti-abuse clauses to the existing treaties”.3 The intra-African tax treaties negotiated accounted for about

1 Available by subscription at www.ibfd.org.2 It is interesting that all the former Portuguese colonies in Africa (Angola, Cape Verde, Guinea-Bissau, Mozambique

and São Tomé and Príncipe ) did not enter into tax treaties with Portugal (shortly) after independence – unlike many

other former European colonies.3 Media Statement by the Dutch Government, available at the Government of the Netherlands website,

http://www.government.nl/news/2013/08/30/dutch-government-to-tackle-international-tax-avoidance.html.

Table 1:

Income tax treaties and/or protocols

Status

(Re-)negotiations

Concluded (initialled

or signed)

Entered into force

Terminated

2012

Inter-

African

treaties/

protocols

19

14

20

1

2013

Inter-

African

treaties/

protocols

40

21

12

4

Intra-

African

treaties/

protocols

4

10

4

0

Intra-

African

treaties/

protocols

8

8

1

0

Total

23

24

24

1

Total

23

24

24

1

http://www.government.nl/news/2013/08/30/dutch-government-to-tackle-international-tax-avoidance.html

4

Tax Policy Trend in AfricaIBFD, Your Portal to Cross-Border Tax Expertise Tax Policy Trend in AfricaIBFD, Your Portal to Cross-Border Tax Expertise

17% of the total in each of the 2 years. This percentage seems low, considering that the intra-African treaty

network is currently not very extensive. A recent survey4 estimated that the 55 African countries only have 114

intra-African tax treaties out of a possible total5 of 1,485, a paltry 7.7%. On the other hand, the same study

estimated the number of inter-African tax treaties at 530, which is nearly five times the number of intra-African

tax treaties. The dearth of intra-African tax treaties may be as a result of the low intra-African trade, which is

estimated to be between 10% and 12%.6 Of course the converse may also be true: the lack of an extensive tax

treaty network between the African countries may cause the low volume of intra-African trade. However, the

relatively high number of intra-African treaties concluded in the 2 years (about 42% in 2012 and 28% in 2013),

which suggests a possible high proportionate number of intra-African negotiations in the recent past, may

signify a changing trend.

2.2. Tax information exchange agreements

Table 2 below provides a summary of Tax Information Exchange Agreements (TIEAs) that were either

negotiated, concluded, entered into force or terminated by African countries during the calendar years 2012

and 2013.

It is astounding to note that there were no intra-African TIEAs negotiated, concluded or that entered into force

in 2012 and 2013. Again, this may probably be due to the low intra-African trade. But it could also be that

African countries do not see other fellow African countries as tax havens.

Botswana and South Africa concluded the highest numbers of TIEAs over the 2 years. In 2013 alone,

Botswana signed 9 TIEAs (with the Isle of Man, Norway, Iceland, Denmark, Greenland, Norway, Finland,

Guernsey and Faroe Islands), while South Africa signed six TIEAs (with Samoa, Argentina, Monaco, Barbados,

Cook Islands and Liechtenstein).

Mauritius, on the other hand, concluded three TIEAs (with Guernsey, India and the United States). The TIEA

with India is of particular significance in the light of the re-negotiation of the comprehensive tax treaty between

the two countries following India’s recent changes to its anti-tax avoidance legislation and tax treaty policy.

Mauritius also signed a Foreign Account Tax Compliance Act (FATCA) agreement with the United States,

becoming the first African country to do so.

4 K. Munyandi & R. Hamzaoui, Regional Integration in Africa: What Role Can Tax Treaties Play? (Pending publication).5 Given that the number of countries is “n”, the possible number of bilateral tax treaties (Tn) is given by the

formula Tn = ([n(n-1)])/2.6 United Nations Economic Commission for Africa, Assessing Regional Integration in Africa IV: Enhancing Intra-African

Trade (Addis Ababa 2010), p.3.

Table 2:

Tax information exchange agreements

Status

(Re-)negotiations

Concluded (initialled

or signed)

Entered into force

Terminated

2012

Inter-

African

TIEAs

2

12

21

0

2013

Inter-

African

TIEAs

2

23

4

0

Intra-

African

TIEAs

0

0

0

0

Intra-

African

TIEAs

0

0

0

0

Total

2

12

21

0

Total

2

23

4

0

5


5


2.3. Administrative assistance

In 2013, about 8 African countries either signed or ratified the Convention on Mutual Administrative Assistance

in Tax Matters.7

Ghana, South Africa and Tunisia ratified the Convention. The Convention has since entered into force with

respect to Ghana (September 2013) and South Africa (March 2014), the first African countries to have signed

the Convention. On the other hand, Morocco, Nigeria and Seychelles signed the Convention during 2013,

while the National Assembly of Cameroon authorized the President of the Republic of Cameroon to sign the

Convention and Burkina Faso signed a letter of intention to join the Convention.

In October 2013, South Africa also signed the multilateral Southern African Development Community (SADC)

Agreement on Assistance on Tax Matters - which agreement was signed by the other SADC member states8 in

2012.


As the African Union pushes its agenda of regional integration and promotion of intra-African trade, it is

expected, among others, that more comprehensive intra-African tax treaties will be concluded. Better still, it

would be ideal if the African Union advocated for the widening of the intra-African tax treaty network as part of

its agenda of (and a driver to) regional economic integration.

Further, the fight against tax evasion and tax avoidance and the ongoing OECD work on base erosion and profit

shifting (BEPS) is equally likely to result in more TIEAs and other similar agreements being concluded by many

African countries.

However, there are no signs that intra-African tax treaties and agreements will substantially increase in the near

future.

3. Natural Resource Taxation Measures

3.1. General

The natural resource taxation measures announced by African countries in 2013, which are discussed below,

can be categorized as follows: tax rates, tax incentives, tax on capital gains/transfer of mineral rights, and other

tax measures.

3.2. Tax rates

In general, tax rates on income from natural resources were either maintained or increased. There were no

downward adjustments in tax rates for the extractive industry sector.

7 This Convention was developed jointly by the OECD and the Council of Europe in 1988. It was amended by Protocol

in 2010 in order to align it to the international standard on exchange of information. The Convention is currently one

the most comprehensive multilateral instruments available for cooperation between tax administrations to tackle tax

evasion and avoidance.8 SADC member states are Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique,

Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

6


The Legislative Assembly of Nigeria continued to debate the Petroleum Industry Bill 2012, which proposes

a complete overhaul of the oil and gas taxation regime for upstream petroleum operations, with a view to

increase the government take from the sector.9

Gabon reduced the standard corporate income tax rate for non-mining and non-oil companies from 35% to

30%; and Namibia reduced the standard corporate tax rate for non-mining companies from 34% to 33% (and

plans to further reduce the rate in 2014/15 to 32%) – but maintained the tax rates for diamond mining and

other mining companies at 50% and 37.5%, respectively.

3.3. Tax incentives

There is no clear trend on tax incentives for the extractive industry sector.

Algeria announced some modifications to its tax incentives on natural resources, introducing some and

abolishing others. It introduced tax incentives to encourage investments in unconventional oil and gas activities

and in the exploration of offshore oil fields, complex geological deposits, small deposits and fields situated in

less explored areas. At the same time, it abolished the 50% income tax rate reduction which mining companies

established in the cities of Illizi, Tindouf, Adrar and Tamanghasset were entitled to.

Senegal introduced a concession of 50% reduction in the taxable base for enterprises that export at least 80%

of their production or services, but this incentive is not available to the extractive industry sector – indicating

the country’s desire, like other African countries, not to reduce the revenue base from this sector.

3.4. Tax on capital gains/transfer of mineral rights

In 2013, more African countries widened their scope of the capital gains or similar tax legislation to include

gains (or income) from the disposal or transfer of mineral rights. This may largely be seen as an anti-avoidance

measure.

Cameroon proposed to impose tax on capital gains arising from the transfer of mining rights through a non-

resident vehicle; Ghana announced plans to expand the scope of the capital gains tax to cover petroleum

operations; Kenya introduced a final withholding tax on income from the sale of property or shares in respect

of the extractive industry sector (at the rate of 20% for non-residents and 10% for residents); Mauritania

introduced a capital gains tax on disposal of mining rights at the rate of 10%; and Seychelles amended the

Petroleum (Taxation) Act 2008 to, among others, expand the scope of the petroleum income tax to include

gains from the direct and indirect assignment of rights, leading to a change in control of at least 10% of the

ownership or the voting rights of a petroleum company.

Zambia, which does not have a capital gains tax, introduced new fees relating to the holding or transfer of

mining rights.

9 Salient among the proposed changes is the replacement of the Petroleum Profits Tax (PPT) with the Nigerian Hydrocarbon

Tax (NHT). While the tax rates for the NHT are lower (at 50% for onshore and shallow water areas, and 25% for bitumen,

frontier acreages and deep water areas) than under the current PPT (at approximately 85% and 50%, respectively), unlike

the PPT, the NHT will be over and above the corporate income tax of 30%. Considering that the Petroleum Industry Bill (PIB)

seems to widen the tax base and also introduces other tax-like instruments, the effective tax rate is likely to be higher if the

new regime is implemented as proposed.

7


3.5. Other tax measures

Ghana announced that a Windfall Profit Tax Bill10 will be re-introduced to Parliament to bring into effect a

windfall tax of 10% on mining companies.

Rwanda introduced a mineral royalty based on the value of the basic or precious metal extracted at 4% or 6%,

respectively. Burundi also introduced an ad valorem mineral royalty of 4% on basic metals, 5% on precious

metals, 7% on gemstones and 2% on other mineral substances.

Tanzania enacted the Finance Act 2013 which, among others, ring-fences losses arising from a mining or

petroleum operation in a contract area.


At least 14 countries announced new measures to their natural resource taxation regimes in 2013. Most of

these counties are sub-Saharan African countries, suggesting a possible tax demonstration effect.

In general, the natural resource taxation changes announced in 2013 were revenue raising measures. This is

perhaps not surprising. The new measures may largely be driven by the increasing demand by nationals and

civil society11 that Africa should realize a “fair share” of revenues from its mineral resources. For example, the

Africa Progress Panel12 stated in its 2013 report that:

“Far more than increased aid, what Africa needs is strengthened international cooperation so that it can secure

a fair share of the wealth now being drained out of the region through unfair and sometimes illegal practices...

Taxation is a case in point. African governments themselves have to review current extractive industry tax

regimes in the light of prevailing world market conditions.”

Most of the debate for a fair tax system has been centred on tax avoidance. It is interesting and strange to note

that a majority of the countries did not introduce measures directed at tackling tax avoidance in the extractive

industry sector. The measure introduced by Cameroon on the taxation of capital gains arising from the transfer

of mining rights is perhaps the only exception.

Unfortunately for mining and petroleum companies in the resource-rich Africa, the tax policy outlook is not

promising. Certainty and stability, part of the fundamental requirements of all tax systems, are not expected

any time soon. The pressure on governments to realize a “fair share” of resource revenues is not likely to

reduce. A good indication of this is South Africa’s appointment of a Tax Review Committee13 whose terms of

reference include considering “whether the current mining tax regime is appropriate”. The wording of this term

of reference suggests that a recommendation of changes to the country’s mining tax regime is expected.

In summary, African countries will, for the foreseeable future, continue to squeeze more revenue from the

extractive industry sector.

10 Ghana has had intentions to introduce a windfall profit tax on mining companies since November 2011, but the proposal

has never been legislated.11 See also H. van den Hurk, Starbucks versus the People, 68 Bull. Intl. Taxn. 1 (2014), Journals IBFD (accessed 10 Jan.

2014) on the fight by non-governmental organizations for fair tax systems.12 Africa Progress Panel, Africa Progress Report 2013, p. 78, available at the Africa Progress Panel website,

www.africaprogresspanel.org.13 Media Statement, Minister Gordhan Announces Further Details of the Tax Review Committee and the Terms of

Reference, p.2, available at the National Treasury website, www.treasury.gov.za/TaxReviewCommittee/.

http://www.africaprogresspanel.org

8


4. Changes in Anti-Avoidance Rules

The introduction of anti-avoidance rules to income tax legislation was undoubtedly one of the major trends

among African countries in 2013. The measures came as a response, first, to an increasing level of aggressive

tax planning, and second, due to the increasing awareness of BEPS practices following the publication of

the 2013 OECD Report and Action Plan on BEPS behaviour. The new rules took the form of either General

Anti-Avoidance Rules (GAAR) or Specific Anti-Avoidance Rules (SAAR). These changes are expected to heavily

impact tax risk management processes of the tax authorities on one hand, and the businesses and tax advisors

on the other.

4.1. General anti-avoidance rules introduced

Egypt proposed GAAR legislation in early 2013. These proposals were the outcome of major tax controversies

where GAAR legislation was perceived as a possible long-term solution to the lack of anti-abuse provisions

in the Income Tax Code enacted by Law 91 of 2005. However, the proposed changes were rejected by the

Egyptian Shura Council (which had legislative power in Egypt at that time). In brief, the proposed GAAR

provided that the tax authority has the power to reassess any transaction or agreement which has a purpose

to eliminate, reduce, defer or exempt the taxpayer from income tax; and that the burden of proof lies with

the taxpayer. The proposals were rejected due to, among other reasons, their wide scope of application, and

concerns by the business community on a possible extensive and arbitrary use by the tax authority, thereby

potentially reducing the legal certainty of business transactions.

In Algeria, GAAR legislation was also introduced under the 2014 Finance Law (Law 13-08 of 30 December

2013). Until the end of 2013, Algeria did not have any anti-avoidance rule in its tax legislation except some

general provisions on transfer pricing adjustments. The new Algerian GAAR provision is based on the French

concept of ‘’abuse of law’’ (Abus de droit). In fact, a new article 19bis has been added to the Tax Procedure

Code (Code des procédures fiscales) in order to allow tax inspectors to challenge the genuineness of

conventions and agreements entered into by taxpayers if they are driven by a tax motive. Accordingly, tax

inspectors may reassess legal acts which have no other purpose than to avoid or reduce the tax liability of the

taxpayer. The provisions stated expressly that a tax audit procedure may be initiated on the basis of this rule.

Senegal also revised the definition of “abuse of law” under the new General Tax Code. The code entered into

force on 1 January 2013 and was published in the Official Gazette No. 6706 of 31 December 2012 under Law

2012/31. Under this revised GAAR, the tax authority is empowered to disregard any arrangement the purpose

of which is to transfer any benefits or income, either directly or through an intermediate person. Similarly, any

scheme is deemed to fall under the abuse of law scope if the aim of the arrangement is to reduce registration

duties or to avoid, wholly or partly, the payment of turnover taxes.

South Africa participated in the first BRICS revenue authorities meeting, which was held in New Delhi on 17

and 18 January 2013. A communiqué issued following the meeting expressed the BRICS countries’ concern

about the erosion of the tax base by practices that involve abuse of tax treaty benefits, incomplete disclosure

of information and fraudulent claims, and made a commitment to preventing BEPS through increased mutual

cooperation. The cooperation will involve developing international standards on international taxation and

transfer pricing, taking into account the aspirations of developing countries in general and the BRICS in

particular. The other areas of cooperation include strengthening the enforcement procedures, sharing best

practices and capacity building, sharing anti-avoidance and non-compliance practices, and promotion of

effective exchange of information.

9


9


In addition, according to a media statement released on 12 October 2013, South Africa has agreed to work

closely with the United Kingdom to tackle offshore tax evasion, including pressing for stronger international

action. As part of this initiative, South Africa will also join the pilot scheme for the automatic exchange of tax

information launched by the United Kingdom, along with France, Germany, Italy and Spain. It is expected that

greater automatic information exchange will lead to better governments’ ability to expose hidden assets and

ensure the correct payment of taxes, and further build on strengthening the resolve of the G20 to ensure that

everyone pays the tax that is due.

4.2. Specific anti-avoidance rules introduced

Most of the specific anti-avoidance rules introduced by African countries in 2013 targeted the indirect transfer

of shares.

Gabon introduced a specific anti-avoidance rule to the General Tax Code in the 2014 Finance Law (Law 22

for 2013). The main purpose of this measure is to enable Gabon to tax capital gains on the indirect transfer

of Gabon-based assets (including gains on the indirect disposal of shares in Gabonese resident companies)

through a non-resident intermediate holding vehicle.

Similarly, to counter the indirect transfer of both shares in resident companies and bonds and other negotiable

debt securities, including rights related to exploration or exploitation of natural resources held by resident

companies, Cameroon introduced a special anti-avoidance rule in the General Tax Code through the 2014

Finance Law (Law 2013/17 of 16 December 2013). Under Article 42 of the General Tax Code, as amended,

capital gains derived from such transfers are subject to tax in Cameroon, regardless of whether the transfer is

made in Cameroon or abroad. This amendment extends the territorial scope of the capital gains tax regime in

order to cover capital gains realized abroad where the underlying assets are based in Cameroon. The measure

is intended to address tax planning schemes similar to the Indian Vodafone case, where an intermediate

company is used to indirectly transfer the assets held by a target company based in Cameroon. According

to the new measures, capital gains realized abroad via an intermediate entity will be considered as capital

gain subject to tax at the rate of 16.5%. In order to secure the collection of this tax where the transfer is

taking place outside Cameroon, the resident company and the transferor are jointly and severally liable for its

payment. Under the Interpretation Guideline published by the Cameroon Tax Administration,14 the new provision

is applicable on gains realized as of 1 January 2014.

Angola introduced transfer pricing rules for large taxpayers. The rules include the definition of affiliated

parties and the applicable transfer pricing methods. Algeria also tightened the transfer pricing documentation

requirements in an attempt to handle increasing tax audit controversies involving pricing adjustments. Under

a Decision of the Minister of Finance, published in the Official Gazette of 20 January 2013, the obligation to

produce transfer pricing documentation applies to the following companies:

joint stock companies and partnerships (which have elected to be subject to corporate tax) when they realize

a total annual revenue of at least DZD 100 million;

companies operating in the hydrocarbon sector as well as their subsidiaries;

resident subsidiaries which are members of a foreign group irrespective of their annual revenue; and

group companies where the annual revenue of one of the companies is equal to or exceeds DZD 100 million.

14 Guideline 1 of 15 January 2014.

10


Senegal amended its transfer pricing rules to allow the tax authority to include in the taxable profits of resident

companies or branches of foreign companies profits indirectly transferred to non-resident related companies.

In order to limit the shifting of tax base to tax havens, specific payments to non-resident persons are not

deductible for income tax purposes where the recipient is subject to a privileged tax regime or is based in non-

cooperative states or territories (NCST).

Tunisia and Madagascar introduced anti-tax haven legislations. In the case of Tunisia, to counteract the

shifting of tax base to low tax countries, the withholding tax rate on specific outbound payments was increased

to 25% where the recipient is based in a tax haven jurisdiction. Guidelines as to which countries will be

deemed to be tax havens are yet to be published by decree. Payments covered by these measures encompass

dividends, interests, royalties and technical service fees. For Madagascar, the tax deductibility is generally

denied on certain expenses paid to persons located in a foreign country considered, under the General Tax

Code, as a low-tax jurisdiction. These expenses include interest, royalties and services payments. In order

to be entitled to the tax deduction, the payer is required to demonstrate that the expense corresponds to an

actual transaction and is not excessive.


One of the major challenges when introducing anti-avoidance rules is determining reasonably clear boundaries

for their application in order to avoid arbitrariness and provide some certainty to businesses. This requires that

tax administrations have adequate capacity and skills. In this regard, an independent judicial system can also

play a vital role in putting normative criteria on when the tax avoidance threshold is exceeded.

Another challenge is ensuring that the rules are compatible with the tax treaties in force. For instance, if an

anti-avoidance rule is aimed at taxing capital gains realized abroad on the transfer of local assets via an

intermediate vehicle, it would be interesting to see how the tax authority would interpret such a provision if a

tax treaty exists between the source state and the state where the intermediate entity is resident. The article

dealing with capital gains on regular shares (typically paragraph 5 of article 13, if the relevant treaty follows the

OECD Model) would disallow the source state from taxing the gains.

5. Tax Incentives Policy Changes

5.1. Partial review of tax incentives regimes

Tunisia reviewed its tax incentives regime with a view to making an overall enhancement of the business

environment, instead of merely granting tax incentives. A new Investment Incentives Code, which will facilitate,

promote and provide guarantees to investment, is being studied by an ad-hoc executive committee. Within this

context, the committee is required to specifically focus on simplifying administrative investment procedures,

integrating tax and financial incentives, strengthening investment guarantees for foreign investors, supporting

domestic enterprises investing abroad, and creating a national investment authority. The new code would

eventually replace the current Investment Incentives Code of 1993.

11


11


Parallel to this initiative, under the 2013 Finance Law, the 10-year tax holiday regime applicable to export

enterprises15 was substituted by a 10% income tax in case of companies and a partial exemption in case of

individuals with effect from 2014. However, enterprises created under this regime before 2014 will continue

benefiting from the 10-year full income tax exemption. In the same line, under the 2014 Finance Law, the

withholding tax exemption on outbound royalties paid by these enterprises is abolished.

Zambia, under the 2013 Budget, introduced different measures which restricted the granting of tax incentives.

Particularly, the 10-year tax holiday period now applies from the commencement of business operations

(instead of from the start of profit generation); tax incentives may only be granted if the investor has met the

employment creation targets; and the capital expenditure deduction rate in the mining sector was reduced from

100% to 25%. In addition, developers and investors in Multi-Facility Economic Zones or Industrial Parks are

subject to a 20% withholding tax which was introduced on management, consultancy and interest payments

made to non-residents, and the exemption period for dividend payments made by these investors (and also

investors in priority sectors) takes effect from the date of commencement of business operations. Finally,

customs duty exemptions granted as incentives apply only to goods that are not locally produced.

In the 2014 Budget, we observe further restriction of the rules. Tax incentives for sectors declared as of priority

under the Zambia Development Agency Act will be aligned to those provided by the revised Sixth National

Development Plan; and the granting of tax incentives will be rationalized. Specifically, import duty exemptions

will no longer be granted to new licence holders apart from licence holders in Multi-Facility Economic Zones,

Industrial Parks and business enterprises in rural areas.

In Guinea, Mining Code amendments have clarified the scope and restricted the granting of tax incentives

for research and development (R&D). For example the VAT exemption will apply only to goods listed in a

special document submitted to the authority. Generally, instead of granting tax incentives, the aim of the new

amendment is providing better guarantees to investors (e.g. the stability period available to companies that

have concluded a mining agreement with the state is extended from 10 to 15 years, but limited either to the

applicable rate or the assessment base depending on the type of tax).

5.2. Comprehensive review of tax incentives regimes

Cape Verde enacted a new Tax Benefit Code,16 which introduced tax incentives and also implements the

principles and general rules for foreign investment introduced earlier in 201217 (i.e. non-discrimination, legal

certainty, protection of private property, free profit remittance, free access to the foreign exchange market,

permission for multi-currency accounts held with financial institutions, and national and international dispute

resolution procedures). The new code introduces a variety of tax incentives for:

X investment (income tax credits or direct and indirect tax exemptions);

X entities authorized to operate in the International Business Centre (reduced tax rates and customs

duties exemptions);

X the financial sector (income tax exemptions and tax credits); and also

X tax benefits for the promotion of employment.

Further, the code eliminates benefits established under previous laws but maintains benefits already granted or

requested (the 2013 Budget also abolished some tax benefits for the promotion of employment and specific

industries).

15 Export enterprises are enterprises producing goods or rendering services wholly for exports.16 Código de Benefícios Fiscais enacted by Law 26/VIII/2013 and published in the Official Gazette of 21 January 2013. 17 Código de Benefícios Fiscais enacted by Law 13/VIII/2012 published in the Official Gazette of 11 July 2012.

12


In a similar approach, a new investment law was enacted by Cameroon.18 The law provides for several

investment incentives aimed at improving the business environment in general. Under this law, companies

meeting specific requirements (such as employment of nationals, level of exports and use of natural resources)

may benefit from various tax incentives specifically granted by the Government. Tax incentives may be

granted for a maximum 5-year period during the installation phase (e.g. exemption from duties levied on

registration, capital increase, concessions agreements, acquisition of real properties and professional leases;

and exemption from business license duty, customs duties, import taxes and VAT), and for a maximum 10-

year period during the production phase (e.g. extension of the loss carry-forward period, income tax credits,

or reduction or even full tax exemption depending on amounts invested and beneficial effects for the national

economy, including the corporate income tax; minimum lump-sum tax; stamp duties; income tax on passive

income and services and customs duties and other taxes on imports). In addition, specific incentives may be

granted for investments considered high priority for the country’s economy.

In the 2013 Budget, Ghana indicated that it would undertake a comprehensive review of the tax incentive

regime in order to reduce the granting of tax exemptions, in particular regional incentives and incentives

for agro-processing, management and technical fees, and imported services (VAT exemption). In addition,

incentives for NGOs, charitable organizations and other institutions will be closely monitored to reduce their

abusive use.

South Africa has constituted a “Tax Review Committee” with the main objective of assessing the country’s tax

policy and its role in supporting inclusive growth, employment, development and fiscal sustainability. For this

purpose, the Committee is required to evaluate the country’s tax system against the international tax trends,

principles and practices. Regarding tax incentives regime, the Committee is required to re-align the regime with

the country’s developmental objectives.

5.3. Incentives for small and medium-sized enterprises introduced

Algeria plans to introduce new tax incentives, including a 5-year income tax exemption for incentives for small

and medium-sized enterprises (SMEs) (2014 Draft Finance Law). Congo (DR) has introduced a new business

income tax for micro and small companies, under which companies are subject to 1% (sale of goods) or 2%

(provision of services) based on annual turnover, or even a lump-sum tax. Morocco has reduced the corporate

income tax rate from 15% to 10% for companies with annual taxable profits equal to or below MAD 300,000

(2013 Budget Law). Seychelles has introduced a new regime for small companies under which companies

may elect to be taxed on 15% on net profits or 1.5% on annual turnover if their annual turnover is less than SR

1 million (2013 Budget Law). Finally, in Tunisia, SMEs created in 2013 are exempt from income tax for a 3-year

period (2013 Finance Law).

5.4. Financial tax incentives introduced

Congo (Rep.) has introduced a special regime for holding companies, under which capital gains are fully

exempt if derived from securities invested within the “CEMAC area”19 and held at least for 2 years, or capital

gains are subject to a 8.25% tax if derived from other securities held at least for 2 years (normal rate is 33%). In

addition, no withholding tax is levied on interest paid to non-resident financial institutions or shareholders, and

dividends are subject to tax at the reduced rate of 10% instead of 20% (2013 Budget Law).

18 Law 2013/004 of 18 April 2013. Activities governed by specific laws (e.g. oil, mining and gas activities, and activities

carried on under public-private partnerships agreements) are excluded from the scope of this Law. 19 Available at http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/indirect-tax-rates-table.aspx.

http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/indirect-tax-rates-table.aspx

13


Mauritius has introduced a tax-free regime for global funds, which will be established as corporate bodies.

The regime is intended to attract investors from non-treaty countries (2013 Budget Law). Morocco has

extended by another 3-year period the tax incentives related to corporate income tax partial exemption for

companies issuing shares on the Moroccan Stock Exchange by means of an initial public offering (IPO) or by

an increase in equity capital, and also the preferential regime introduced by Budget Law 2010 in respect of

mergers and divisions, i.e. exemption from capital gains tax or income tax (2013 Budget Law).

5.5. Other industry-specific incentives introduced

Algeria plans to introduce tax incentives for investment in unconventional hydrocarbon activities and in

the exploration of specific deposits (bill on amendments to the Hydrocarbon Law 05-07 of 2005). Angola

announced plans to undertake a tax reform aimed stimulating domestic and foreign investment by introducing

tax incentives for specific domestic industry sectors (other than oil). In Benin, the Government is empowered

to set a tax rate lower than 6% for interest on bonds, with maturity equal to or higher than 5 years, issued for

funding investment in priority sectors (2013 Finance Law). Gabon has reduced the standard corporate tax rate

from 35% to 25% for tourism companies and companies holding intellectual property rights. Newly created

tourism companies may also benefit from a 3-year period exemption provide they invest at least F.CFA 300

million (previously F.CFA 800 million). In addition, taxpayers operating in the wood, tourism, agriculture and

sports industry, large industrial complexes and low-rent housing companies are granted tax incentives on

imports.

Ivory Coast introduced new tax incentives for companies investing in low-cost housing (2013 Finance Law).

Nigeria has introduced a 5-year tax holiday for companies that process sugar cane into sugar (2013 Budget

Law). Seychelles has reduced the corporate income tax rate to 15% for companies providing educational

and medical services (2013 Budget Law). Senegal introduced special tax deductions for enterprises investing

more than F.CFA 100 million in the creation or the extension of businesses in specific sectors (excluding mining

and oil companies) as follows: 40% of the investment’s value for the creation of a new business, and 30% of

the investment’s value for the extension of an existing business (up to a maximum of 50% of the taxable profits

for enterprises created in Dakar and 70% for enterprises created in other regions). In addition, a 50% tax

deduction from the taxable profits is granted to enterprises which export more than 80% of their production or

services (new General Tax Code).

Finally, South Africa will introduce a new tax exemption regime for resident international shipping companies

to promote South Africa as an ideal shipping centre. The regime would exempt qualifying shipping entities from

income tax, capital gains tax, dividends tax, and withholding tax on interest. Officers and crew of the South

African flagged ships used on international traffic would also be exempt from tax (2013 Draft Taxation Laws

Amendment Bill).

5.6. Free economic zones introduced

South Africa will introduce a new set of tax incentives for companies operating within “special economic

zones”. The tax incentives would further promote the existing policy for industrial development zones and

would include accelerated depreciation allowances on buildings. It also reduced corporate tax rate to 15%

(instead of the 28% standard rate) for companies carrying on qualifying activities, introduced VAT and customs

reliefs and employment incentives (Draft Taxation Laws Amendment Bill).

14


5.7. Green energy incentives introduced

Burkina Faso and Mauritius have introduced incentives to promote the green energy industry. In the case of

Mauritius, accelerated annual allowances will be granted in respect of investments made in manufacturing and

“green technology” equipments during 2013 and 2014 (2013 Budget Law).


In recent years, the usefulness of tax incentives has been a topic of much debate and discussion. It is now

generally agreed that tax incentives can be inefficient and detrimental to a (developing) country’s revenue base.

On a regional basis, tax incentives can result in harmful tax competition.

The year 2013 continued to witness a general trend of tax incentives regimes expansion in Africa. However, it is

encouraging to observe that a few countries undertook measures to review and to restrict their regimes.

6. Changes in Tax Rates

6.1. Corporate tax rates

Between 2009 and 2013, corporate tax rates were reduced in at least 18 African countries (Botswana,

Burkina Faso, Burundi, Cape Verde, Comoros, Congo (DR), Congo (Rep.), Gambia, Liberia, Libya,

Madagascar, Mali, Namibia, São Tomé and Príncipe, South Africa, Swaziland, Togo and Zimbabwe);

increased in four countries (Egypt, Eritrea, Senegal and Seychelles); and remained almost constant in the

rest of the countries.20

In general, therefore, there has been a downward trend in corporate income tax rates in the region. In 2009,

the average tax rate was about 30.6%. This dropped to about 28.7% in 2013.

By contrast, the trend is not that clear in other parts of the world. In the European Union (EU), six Member

States increased their corporate tax rates while six reduced the rates.21 The tax rates remained constant in

the rest of the EU Member States. In Latin America, only six countries modified their tax rates: three countries

reduced while the other three increased their tax rates.

The range of the corporate income tax rates within Africa is wide. Chad has the highest tax rate at 40%, while

Mauritius and Sudan have the lowest at 15%.

6.2. Personal income tax rates

Marginal tax rates on personal income changed only in about 17 countries in the last 5 years: Angola, Benin,

Egypt, Namibia, Seychelles, Sudan, Uganda and Zimbabwe increased their marginal tax rates, while

Congo (DR), Congo (Rep.), Gabon, Guinea, Libya, Madagascar, Morocco, Nigeria and Senegal reduced

the rates. The rates remained constant in rest of the African countries.

A similar trend is observed in other regions. For example, marginal tax rates on personal income were

increased in nine EU Member States, reduced in two, and remained unchanged in the rest of the countries.

20 See also other comparative studies available at www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-

marginal-tax-rate-individual&date=2009; www.gfmag.com/component/content/article/119-economic-data/12526-

corporate-tax-by-country.html#axzz2ftvkos2R; and www.pwc.com/ke/en/pdf/2013-east-african-tax-guide.pdf.21 Working Paper No. 38/2013: Tax reforms in EU Member States 2013 – Tax policy challenges for economic growth and

fiscal sustainability – Directorate General for Taxation and Customs Union and Directorate General for Economic

and Financial Affairs – European Commission.

http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-%0Dmarginal-tax-rate-individual%26date%3D2009

http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-%0Dmarginal-tax-rate-individual%26date%3D2009

http://www.gfmag.com/component/content/article/119-economic-data/12526-%0Dcorporate-tax-by-country.html%23axzz2ftvkos2R

http://www.gfmag.com/component/content/article/119-economic-data/12526-%0Dcorporate-tax-by-country.html%23axzz2ftvkos2R

http://www.pwc.com/ke/en/pdf/2013-east-african-tax-guide.pdf

15


In Latin America only one country reduced the marginal tax rate, while two countries increased the rates.

Over the last 5 years, the average marginal tax rates on personal income remained almost unchanged – varying

from 32.2% in 2009 and to 32.0% in 2013.

However, the marginal tax rates widely range from 10% (in Libya) to 45% (in Benin, Congo (Rep.) and Zimbabwe).

6.3. Value added tax rates

The value added tax (VAT) rates across Africa have remained almost unchanged during the last 5 years. The

average VAT rate in 2009 was about 14.7%. In 2013, it slightly increased to 14.8%. During this period, the VAT

rates were increased in only four countries (Botswana, Congo (DR), Seychelles and Sudan), reduced in two

countries (Liberia and Tanzania) and remained unchanged in the rest of the countries.

The above changes are, to a large extent, in line with the global trend. For example, in Europe, nine EU Member

States increased their VAT rates while only three reduced them.22 In Latin America, VAT rates were increased in

three countries and reduced in one country.23

Nigeria and São Tomé and Príncipe have the lowest VAT rate in the region at 5%, while Madagascar and

Morocco have the highest at 20%.


While corporate tax rates have in general been on a downward trend in Africa, marginal tax rates on personal

income have largely taken the opposite direction. On the other hand, VAT rates have stayed constant.

As no comparative analysis of changes in taxable base has been made, no conclusion is drawn concerning the

trend in effective tax rates.

7. Special Case: Zimbabwe’s Change in Basis of Taxation

7.1. Background to the change

One of the most interesting tax policy changes in 2013 in Africa was Zimbabwe’s move from a source-based tax

system to a residence-based tax system. The Zimbabwean parliament passed a new Income Tax Bill which was

scheduled to change the basis of taxation from 1 January 2014. This is perhaps the first such change in Africa

since 2001 when South Africa made a similar change.24

As opposed to a source-based tax system, which levies income tax on territorial basis, a residence-based

tax system (also called worldwide taxation) taxes a resident on income from all sources (i.e. irrespective of the

income’s geographical origin).25

The obvious question is whether this change is appropriate for Zimbabwe.

22 Id.23 See also http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/indirect-tax-rates-table.aspx. 24 R. Robertson, Principle of Residence Tax – Transactions, Tax and Investments, South African Institute of Tax

Professionals, as found at http://www.thesait.org.za/news/104411/Principle-of-Residence-Tax--Transactions-Tax-and-

Investments.htm. 25 Although nowhere in the world are either of these systems applied with any degree of purity. See the 5th Report – Basing

the South African Income Tax System on the Source or the Residence Principle – Options and Recommendations, p. 2,

as found at http://www.treasury.gov.za/publications/other/katz/5.pdf.

http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/indirect-tax-rates-table.aspx

http://www.thesait.org.za/news/104411/Principle-of-Residence-Tax--Transactions-Tax-and-%09Investments.htm

http://www.thesait.org.za/news/104411/Principle-of-Residence-Tax--Transactions-Tax-and-%09Investments.htm

http://www.treasury.gov.za/publications/other/katz/5.pdf

16


According to a Zimbabwean tax expert, some of the main reasons for the change are:

X to place the income tax system on a sounder footing, thereby protecting the national tax base from

exploitation;

X to bring the national tax system more in line with international principles;

X to relax exchange controls; and

X to more effectively cater for the taxation of e-commerce.26

7.2. Arguments for a residence-based tax system

In theory, such a transition has been justified on the basis of the new worldwide economic changes and

challenges.27 Taxation of passive income such as income from investment (dividends and interest) and income

derived from intangibles (royalties) became complex due to the possibility of shifting the source of this type of

income, especially to locations where the main financial markets operate or which offer a more competitive

environment. Additionally, e-commerce posed new challenges to the tax authorities due to the difficulties in

attributing income to companies producing digital products.28 Thus, taxing worldwide income instead of territorial

income becomes an important alternative in order to face the new economic reality.

It has also been argued that the main advantages of using a residence-based tax system are that it takes into

account the personal circumstances of the taxpayer when levying taxes and that it neutralizes tax competition

from tax havens (low or zero-tax jurisdictions).29 On the other hand, the disadvantages cited for the system

include that, from a tax administration point of view, the tax control is more complex. Auditing companies realizing

foreign-source income could be challenging, especially for developing countries where available resources

and well-trained tax authorities are limited.30 A residence-based tax system will also require a certain level of

coordination and exchange of information with other governments. Therefore, double taxation treaties become

essential under such a system due to the fact that the sovereignty of one country in applying worldwide taxation

does not prevent the source state from exercising its taxing right. Currently, Zimbabwe does not have a good tax

treaty network.

7.3. Arguments for a source-based tax system

On the contrary, based on the sovereignty principle, source-based tax systems are more appropriate as they

allow each state to pursue its own tax policy within its territory. They also facilitate easy and low-cost tax

administration since assessments are limited to transactions within a territory. This feature might be of importance

for countries like Zimbabwe with limited resources for tax control at an international level. Finally, other countries

use a source-based tax system because it eliminates the necessity of double tax agreements since the income

tax is levied only once, in the source country.31

26 M. Mangoro, Residence basis of taxation: what to expect from the new Income Tax Act, Bulawayo 24, 7 March 2013,

as found at http://bulawayo24.com/index-id-opinion-sc-columnist-byo-27225.html. 27 A. Schindel & A. Atchabahian, Source and Residence: A New Configuration of their Principles. General Report , IFA

Cahiers 2005 – Volume 90A, p. 26.28 Id.29 Id., p. 31.30 Id., p. 31.31 Id., p. 29.

http://bulawayo24.com/index-id-opinion-sc-columnist-byo-27225.html

17


Interestingly, nowadays developed countries such as the United States also look at the source-based tax system

as a possible replacement for the residence-based tax system. Proponents argue that a source-based system

would, among others, make US firms more competitive abroad and would allow them to bring overseas income

back to the United States without being taxed.32

7.4. Definition of residence

Once a decision to adopt a residence-based system has been made, the next inevitable challenge is the definition

of the term “residence”, since it will determine who falls within the scope of the system. The scope of the term

“residence” has to take into account the status of the country as either a capital importing or exporting country.

The Zimbabwe Income Tax Bill 2012 defines a resident individual as a person who has a normal place of abode

in Zimbabwe and is present in Zimbabwe at any time during the year of assessment; or a person who is present

in Zimbabwe for one or more periods amounting in aggregate to 183 days or more in any 12-month period that

ends during the year of assessment. On the other hand, a company is deemed to be resident in Zimbabwe if

it is incorporated or registered, or required to be incorporated or registered in Zimbabwe, or has its effective

management and control exercised in Zimbabwe at any time during the year of assessment; or undertakes the

majority of its operations in Zimbabwe during the year of assessment. Additionally, the bill establishes specific

residence rules for trusts, partnerships and temporarily resident individuals.33

The fact that the term “residence” is so broadly defined reflects the complexity of the residence-based tax system.

In view of this, it may be argued that perhaps Zimbabwe only needed to reform its source-based tax system. But

on the positive side, Zimbabwe may derive motivation from an apparently successful transition in neighbouring

South Africa.

8. Tax Harmonization and Regional Integration

A number of developments which may have tax implications were observed in the African Union’s eight

recognized34 Regional Economic Communities (RECs) in 2013. The salient ones are discussed below.

8.1. Dynamism in the ECOWAS

The Economic Community of West African States (ECOWAS)35 is partly financed through imposition, under the

Community Levy Protocol, of a 0.5% levy on goods imported from outside the region. During 2013, there was

concern raised regarding the lack of a full implementation of the protocol.36 Further, member states discussed

proposals to replace the 0.5% levy with a 1.5% “Integration Community Levy”.

Member states identified the implementation of the Common External Tariff (CET), the free movement of persons

32 John Barrasso, Territorial vs. Worldwide Taxation, Senate Republican, Policy Committee, as found at

http://www.rpc.senate.gov/policy-papers/territorial-vs-worldwide-taxation. 33 Zimbabwean Income Tax Bill 2012.34 The RECs recognized by the African Union are the Arab Maghreb Union (UMA), the Common Market for Eastern and

Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), the Economic Community of

West African States (ECOWAS), the Southern African Development Community (SADC), the Intergovernmental Authority on

Development (IGAD), the East African Community (EAC) and the Community of Sahel-Saharan States (CEN-SAD), available

at the African Union website, www.au.int/en/.35 The member countries are Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast,

Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.36 ECOWAS Budget Session held on 6 November 2013 in Abuja, Nigeria.

http://www.rpc.senate.gov/policy-papers/territorial-vs-worldwide-taxation

18


and goods, and the conclusion of Economic Partnership Agreement (EPA) negotiations with the European Union

as priority areas for 2014.37

8.2. Birth of community law in the COMESA

There were two major developments in the Common Market for Eastern and Southern Africa (COMESA).38

The COMESA Competition Commission, established under article 6 of the COMESA Competition Regulations

2004, became operational on 14 January 2013. One of the first actions of the Commission was the

announcement of the types of transactions that are reportable. Such transactions include:

X mergers and acquisitions where either the acquiring firm or the target firm operates in two or more COMESA

member states; and

X agreements between upstream and downstream firms which can be anti-competitive if they foreclose

competition in either (or both) the upstream and downstream markets.

The Commission also launched consultations on draft guidelines on various provisions of the Competition

Regulations, including merger assessment, market definition and public interest.

Another major development from COMESA was the COMESA Court of Justice (CCJ) decision in Polytol Paints

& Adhesives Manufacturers Co. Ltd v. the Republic of Mauritius (Case Reference Number 1 of 2012) which was

delivered on 31 August 2013.

The dispute arose over a 40% customs duty imposed in Mauritius on specific products imported by the

company from Egypt, one year after the elimination of customs duties on products originating from another

COMESA member state.39 Both Egypt and Mauritius are member states of COMESA.

The applicant, a company incorporated in Mauritius, first appealed to the Supreme Court of Mauritius. The

Court rejected the company’s claim for a refund of the duty based on the reasoning that the provisions of the

COMESA Treaty40 could only be applied in Mauritius if they had been domesticated. Since Mauritius did not follow

the COMESA legal notice instructing member states to issue legal or statutory instruments to put into effect

the requirements of article 46 of the COMESA Treaty, the Court reasoned it had no legal basis to accept the

application. Dissatisfied with the decision of the Supreme Court, the company brought the case before the CCJ,

which ruled:

X that COMESA citizens have no right to refer to the Court issues relating to non-fulfilment of Treaty obligations

by a member state as this is a prerogative of other member states and the Secretary General of COMESA.41

However, COMESA citizens may appeal against the enactment of laws which breach the COMESA Treaty;

X that imposing customs duty was an infringement to the Treaty. The CCJ reasoned that article 46 of the Treaty

required member states to eliminate duties on goods from other member states (by the year 2000), and that

once Mauritius joined the Free Trade Area (FTA) in November 2000, it could not selectively apply article 46 and

impose duties on products from some member states in the FTA; and

37 Dakar Meeting held on 25 October 2013.38 The member states of the Common Market for Eastern and Southern Africa (COMESA) are Burundi, Comoros, Congo

(Dem. Rep.), Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles,

Sudan, Swaziland, Uganda, Zambia and Zimbabwe.39 On 1 November 2000, Mauritius eliminated customs duties on products originating in member states. However, on

16 November 2001, Mauritius amended the Customs Tariff Regulation of 2000 to introduce a 40% customs duty on

specific products imported from Egypt, including Kapci paint products.40 Member states were to eliminate customs duties and other charges of equivalent effect imposed on goods eligible

for Common Market tariff treatment by 2000.41 Based on articles 24, 25 and 26 of the COMESA Treaty.

19


X that a bilateral agreement concluded between two member states, such as Mauritius and Egypt, which

includes a provision that derogates from the obligation of eliminating customs duties is incompatible with the

object and purpose of the FTA. The decision drew a lot from European Union law. As in European Law, the

Court held that the bilateral agreement could not justify the breach of article 46 of the Treaty.42

This may be a historic decision in the sense that until then, infringements to and non-implementation of

the COMESA Treaty, Protocols and Secondary Regulations went unpenalized, rendering these instruments

ineffective.

8.3. Movement towards a monetary union in the EAC

The East African Community (EAC)43 finalized a draft Protocol for the Establishment of the East African

Monetary Union (EAMU).44

Further, the EAC started undertaking a verification of the membership applications by Somalia and South

Sudan. It is likely that the political situation in the two countries may delay their admission to the regional block.

8.4. COMESA-EAC-SADC tripartite free trade area negotiations

Negotiations towards the establishment of a Tripartite Free Trade Area (also referred to as a Grand FTA)

covering COMESA, EAC and SADC continued in 2013. It is understood that the negotiations are at phase one,

dealing with, inter alia, tariff liberalization, rules of origin, customs procedures and simplification of customs

documentation and transit procedures. Phase two, the last stage of the process, is expected to start in 2014

and will deal with trade in services and related issues (such as intellectual property rights, trade development

and competitiveness).

The launch of the Tripartite Free Trade Area will help the African Union Commission realize its objective of

establishing a continental free trade area by 2017.

8.5. Sluggish integration process in other RECs

There were no significant developments reported in the African Maghreb Union (AMU), the Economic

Community of Central African States (ECCAS), the Community of Sahel-Saharan States (CEN-SAD), the

Intergovernmental Authority on Development (IGAD) and the Southern African Development Community

(SADC).


While a majority of the African RECs are far from attaining complete tax harmonization,45 it can be argued that

full tax cooperation46 has been achieved in a majority of them.

The need for independent RECs Courts of Justice will be fundamental going forward in ensuring legal

instruments are implemented. On this score, the COMESA CCJ may have set a good precedence in 2013.

42 For a recent example ruled by the European Court of Justice: aff.C-303/12, 12 December 2013, Guido Imfeld et

Nathalie Garcet c/ l’Etat Belge. The combination of a tax treaty and the domestic law, cannot be used to discriminate

European citizens, European Law prevails. 43 The member states are Burundi, Kenya, Rwanda, Tanzania and Uganda.44 The Sectorial Council on Legal and Judicial Affairs finalized the draft Protocol on 15 November 2015 in Arusha.45 Defined as the process of making taxes identical or at least similar in a region. See H.G. Petersen (2008),

http://lsfiwi.wiso.uni-potsdam.de/publikationen/diskuss/index-diskuss.html; and H.G. Petersen (ed.), Tax Systems and

Tax Harmonization in the East African Community”, Potsdam University, 2010, pp. 22-32 and 69-84. 46 Defined as the process of carrying non-conflicting or non-competitive tax policy in a region, and working on

common directives to reach common goals. See H.G. Petersen; and H.G. Petersen (ed.), supra n. 45.

http://lsfiwi.wiso.uni-potsdam.de/publikationen/diskuss/index-diskuss.html

20


9. Conclusion

Significant tax policy changes were made by African countries in 2013. An even more interesting – and

continually evolving – face of taxation in Africa is expected. Among the main drivers will be:

X the African Union’s economic integration agenda;

X the expected increased international business trade, especially with China, the European Union and the

United States, (given the inevitable impact of international trade on both domestic and international tax law

policies);

X increased pressure from civil society on African governments to realize a fair share of revenues from

multinationals, especially those in the extractive industry sector;

X a probable African response to base erosion and profit shifting (BEPS); and

X improved knowledge and skills of tax administrators, with the help of such institutions as the African Tax

Administration Forum (ATAF).

www.ibfd.orgIBFD, Your Portal to Cross-Border Tax ExpertiseIBFD, Your Portal to Cross-Border Tax Expertise

IBFD Head Office

Rietlandpark 301

1019 DW Amsterdam

P.O. Box 20237

1000 HE Amsterdam,

The Netherlands

Tel.: +31-20-554 0100 (GMT+1)

Email: [email protected]

Contact IBFD Social media

Follow IBFD on LinkedIn:

www.linkedin.com/company/ibfd

Join our group Friends of IBFD:

link.ibfd.org/Friends_of_IBFD

Follow us on Twitter:

@IBFD_on_Tax

Visit us at www.ibfd.org

http://www.linkedin.com/company/ibfd

http://link.ibfd.org/Friends_of_IBFD

Documents

IBFD Tax Policy Trend in Africa - IBFD Your Portal to ... · PDF fileIBFD Tax Policy Trend in Africa ... after independence – unlike many other former ... while the National Assembly