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Angola May Install VAT With IMF's Help

by Lorys Charalambous,, Cyprus

08 February 2017

In its latest Article IV Consultation with Angola, the International Monetary Fund (IMF) has suggested that the Government could introduce a value-added tax (VAT) to provide a stable non-oil revenue source.

The IMF noted that "the oil price shock that started in mid-2014 has substantially reduced fiscal revenue and exports. Growth was estimated to come to a halt in 2016 … and inflation has accelerated."

While it "welcomed the significant non-oil primary fiscal consolidation to date," the IMF "stressed that continued fiscal adjustment will be needed going forward to put public debt on a clear downward path while supporting economic growth over the medium term."

Over the medium term, the IMF recommended that "permanently lower oil revenue needs to be offset by higher non-oil revenue." Those reforms could involve "enlarging the tax base; creating a single revenue administration agency; strengthening tax inspections; and better enforcing real estate taxation."

The IMF stated that a VAT (in place of the present narrow-base consumption tax) could be introduced on January 1, 2019. It has estimated that a VAT rate of 10 percent (and a very high threshold of around USD250,000) could yield about 2.5 percent of gross domestic product in revenue to Angola.

In reply to the IMF's report, the Government "did not dispute the need for fiscal consolidation over the medium term, but stressed the urgent need in the near term to support growth after two years of fiscal retrenchment. … [It] remains interested in working closely with the Fund on fiscal structural reform, including a VAT, although they believe a VAT may take up to four years to be introduced in Angola."

TAGS: compliance | tax | value added tax (VAT) | tax compliance | International Monetary Fund (IMF) | Angola | tax rates | inflation

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