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African Tax System Seen As Constraint For Foreign Businesses

by Lorys Charalambous,, Cyprus

07 October 2013

A new Africa Tax Survey, issued by PricewaterhouseCoopers (PwC) on October 1, and containing the results of answers provided by its international business clients operating in Africa, showed that tax is still considered to be one of the primary constraints on doing business in that continent.

In the survey, Paul de Chalain, Tax Leader, PwC Africa, commented that "the most significant findings confirm that doing business on the African continent is still a fairly large challenge. In particular, areas such as obtaining certainty around the application of legislation and discussing/negotiating with the tax authorities remain challenging."

In fact, tax was seen by the businesses surveyed to be the second-most significant threat for companies doing business in African countries, after political instability. It was said that "the countries that were considered as difficult countries to do business in, from both a tax and regulatory perspective, have remained largely the same. These include the Democratic Republic of the Congo, Angola, Nigeria and South Africa. Mozambique is a newcomer to the list."

Compliance with tax legislation and practice was found to be "by far the biggest challenge facing the tax functions of companies doing business in Africa." PwC pointed out that the number of tax audits has also increased significantly, possibly partly because "tax authorities initiate audits in order to meet certain revenue deadlines and targets."

With regard to specific taxes, withholding taxes were noted by PwC to represent a high-level concern for its survey's respondents. "By global standards withholding rates are generally high in Africa, particularly when considering that corporate tax rates are significant as well," it commented. "A significant number of respondents highlighted indirect taxes as an area of concern, suggesting that these taxes are often much more difficult to work with and recover than direct taxes."

However, while PwC had found that withholding taxes and expatriate taxes were considered to be the biggest challenges in its previous equivalent survey in 2007, transfer pricing has now also become a focal point for companies. Some African countries, it added, "are gaining more knowledge and sophistication, and some have already implemented specialized units for transfer pricing."

On the other hand, PwC noted that, although the exchange of information between countries is receiving greater attention, and "while base erosion and profit shifting are coming under greater scrutiny globally, companies active in Africa are split about the impact these have."

TAGS: South Africa | compliance | tax | business | tax compliance | Niger | Nigeria | law | Angola | Mozambique | legislation | transfer pricing | withholding tax | Congo, Democratic Republic of the | standards | regulation | Compliance | Africa | Tax

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