PwC Africa VAT and indirect taxes in Africa Guide 2023
PwC Africa is pleased to release the ninth edition of the VAT and indirect taxes in Africa: A Guide 2023 publication.
Formerly known as the PwC VAT in Africa Guide, we have renamed this year’s publication as we have expanded the scope of coverage to include more than VAT and its equivalents. We highlight the recent developments of other indirect taxes, such as excise duty, carbon or environmental taxes, and relevant miscellaneous levies and fees across the continent.
The purpose of this publication is to bring awareness to the developments in African indirect tax policies to ensure our clients are kept abreast of policy changes, and are able to adapt their businesses to the changing environment. This edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 43 African countries, with Burkina Faso and Togo being included in the publication for the first time.
Job Kabochi, PwC Africa Indirect Tax Leader, says, “At PwC, we have embraced the strategy of solving complex problems together. Therefore, we work to help our clients to continue to remain relevant, grow and thrive amidst a fragmented and chaotic world. We are cognisant of the current turbulent economic landscape of the African continent and how this has become a contributing driving force to the changes in tax policy that we’re seeing. We trust that this guide will continue to direct our readers’ attention to critical tax policy changes, demonstrate PwC’s commitment to solving challenges in a collaborative manner, and bridge a connection to our experts across Africa.”
Across some of the Southern African countries in which PwC operates (South Africa, Mozambique, Zimbabwe, Botswana and Namibia), our indirect tax experts have noted various changes in tax policy during the past year.
South Africa
The most notable change was the introduction of a reverse charge on valuable metals. During 2022, the National Treasury released regulations relating to the imposition of a domestic reverse charge (DRC) on the supply of valuable metals, which became effective from 1 July 2022. Matthew Besanko, PwC South Africa’s Indirect Tax Leader, says: “The main purpose of the DRC is to curb the VAT refund fraud that has been prevalent in the second-hand gold market, whereby the obligation to pay VAT on the sale of valuable metals is transferred to the recipient rather than the seller, and only once the recipient has satisfied all obligations is it entitled to claim the corresponding input tax deduction. This is the first time that a domestic reverse charge has been introduced into the VAT legislation and has had a significant impact on our clients’ systems and processes.”
Besanko says the DRC has many practical implications and that its legislation in its current form does have some difficulties which have been acknowledged in the Minister of Finance’s Budget 2023 documents released in February 2023.
As VAT in South Africa continues to become a mature tax, we continue to witness more VAT disputes with the revenue authorities resulting in litigation.
Mozambique
Another development in the region is that Mozambique introduced certain VAT changes with effect from 1 January 2023, including a reduction in the standard VAT rate from 17% to 16%. A reduced rate of 5% was also introduced, but is only applicable to the following operations:
– the supplies of medical and health services and closely related operations carried out by private hospitals, clinics, dispensaries etc.;
– the provision of teaching services, and the transmission of goods and related supplies of services, when these are carried out by private establishments integrated in the National Education System and recognised by the Ministry of Education;
– the provision of vocational training services, as well as the transfer of goods and the provision of related services, such as the supply of accommodation, food and teaching materials, when these are carried out by private entities; and
– the provision of services consisting in private lessons taught on school or higher education subjects.
In turn, the expenses subject to a reduced rate of 5% are excluded from the right to deduct.
Zimbabwe
As revenue authorities come under increasing pressure to collect taxes, we have seen that there have been VAT rate increases in the South African region over the last few years, with the Zimbabwean Government following suit and further increasing its VAT rate from 14.5% to 15% from 1 January 2023.
Botswana
The Value Added Tax (Amendment) Act, 2023 (“VAT Amendments”) was published on 28 April 2023. These amendments were effective from 3 May 2023. The amendment includes changes to zero-rated and exempt supplies. Items that were changed from exempt to zero-rated supplies include the supply of:
– condoms;
– certain agricultural farming implements;
– tractors; and
– trailers
Furthermore, the exemption of medical facilities was extended to private medical facilities. Where a person’s VAT registration is cancelled by virtue of the exemption of medical services, a new section was introduced to exclude the termination as not being deemed a taxable activity, which means the cancellation of the VAT registration is not deemed to be a taxable supply of goods on hand, including capital goods, whether or not input tax was claimed.
Nilusha Weeraratne, PwC Botswana Tax Associate Director, says: ”The supplies moved from exempt to zero-rated is a positive development as it will allow the suppliers who are supplying items such as condoms or certain agricultural farming equipment to deduct the input tax it incurs on its expenditure in providing this supply, which would otherwise be a VAT cost to the suppliers. The tax burden that would have arisen due to the cancellation of registration for private medical facilities has also been removed by excluding the termination of taxable activity as a taxable supply.”
Namibia
Following the trend across the continent of policy makers using tax instruments to promote certain specific aims, Namibia has also zero-rated the supply of sanitary pads. This zero-rating was introduced in South Africa in 2018 following the VAT rate increase to 15%.
Tax trends across sub-Saharan Africa
In a greater African context, this edition takes a closer look at the various technological changes we have seen in the past year across the continent’s tax landscape. Under the theme A digital Africa, this edition assesses how more African countries are seeing greater adoption of new technologies in varied economic facets, including taxes. Kabochi says, “Tax authorities are digitising tax administration processes and procedures more and more, leveraging technology-enabled solutions to achieve realtime reporting, implement e-invoicing, automate tax compliance certificates processing, and phasing away the manual filing of tax returns.”
In the report, we expand more on trends around real-time reporting, taxing the digital economy and new developments in indirect taxes.
On an environmental, social and governance (ESG) front, The Gambian government expanded its list of second-hand goods/materials that are now subject to the five percent (5%) environmental levy, while Senegal introduced a tax to be levied on plastic bags, pouches and cones or similar plastic material. Pamela Natamba, PwC Uganda Tax Partner, says, “These changes remain a testament that Africa is gaining momentum in effecting ESG measures and relying on indirect taxes for responsible environmental behaviours.”
In South Africa there have been significant changes to the Carbon Tax legislation which provides for drastic increases in the Carbon Tax rates over the next few years, which is expected to be in the region of R462/tCO2e by 2030.
“Our VAT and other indirect taxes guide is a document we trust will be very useful to tax and business leaders across Africa, as it has been in the past. Africa’s tax landscape is constantly evolving, demanding an agile approach from us all. We hope all our readers will find this document useful and insightful,” Kabochi concludes.
This analysis is based on tax laws in force as of 1 May 2023.