In the US $700 billion of government funds has been earmarked to bail out struggling financial companies.
“This could have severe effects on poorer African nations in terms of reduced foreign aid, increasing pressure to have debts repaid earlier and reduced foreign investment,” said Hadijah Nannyomo, a tax manager at Ernst & Young in Uganda “In Uganda, the dollar has greatly strengthened against the shilling, while the fuel prices have soared.”
Many importers in the country use foreign currency. With the weak shilling, tax payments at importation will be higher due to high exchange rates.
Several tax considerations exist during an economic downturn and the companies’ tax strategies may need to shift also. One major consideration is transfer pricing.
How to tax efficiently if some of the countries where related parties are located are feeling a greater hit by the economic crisis is one matter of high focus, says Nannyomo.
The tax authorities could also intensify their scrutiny of transfer pricing practices, making robust documentation and economic substance in transactions a must. If they fail to hit their revenue targets because of shrinking economic activity, tax inspectors are likely to increase their efforts to get more revenue from compliant taxpayers
