ITR’s Mattias Cruz Cano spoke with Logan Wort, executive secretary of ATAF, about the unique obstacles that COVID-19 poses to tax policy in African countries and how this will affect businesses during and post-crisis.
Mattias Cruz Cano (MCC): How has Africa’s tax response to the pandemic differed from that seen in other parts of the world?
Logan Wort (LW): We have not conducted comprehensive research to establish, with accuracy, the differences in tax responses to the pandemic between Africa and other parts of the world. However, there are likely to be differences due to the existing difference in tax architecture and sophistication.
Generally, tax systems in Africa are not as complicated as those of developed countries and so the policies may follow the same format. For instance, some developed countries may be having ‘works in lieu of tax payment’. This policy allows a company to contribute to some social infrastructure projects and such a contribution is treated as a tax payment. In many African countries, the cost of such infrastructure is treated as a tax deduction subject to certain domestic tax rules.
Additionally, there are differences in tax morale where in Africa, this morale is relatively lower than in European countries. This may affect tax policies like advance payments. This is a policy where governments may require taxpayers to pay their taxes in advance (earlier than the due date). Uptake of such a policy may be lower in Africa as compared to countries with high tax morale.
The tax policy measures pronounced by African jurisdictions have not distinctively differed so much from the rest of the world as they are focused on enhancing cash flow to taxpayers and easing the compliance burden mostly through the deferral of filing and payments and the suspension of compliance and enforcement activities.
Beyond tax policy, some of the differences may emanate from the extent to which African jurisdictions are able to provide direct cash bail outs for businesses.
MCC: Considering that generally governments in the region may be limited in the help they can provide, how will this affect multinationals in the region?
LW: MNEs will be impacted just like other companies as world demand for many goods shrinks and global supply chains get interrupted. These issues will also affect MNEs operating in the region.
However, some of the MNEs may have access to financial support from the group or from financial institutions unlike small and medium businesses. Therefore, they may remain afloat especially those engaged in businesses which are or may be digitalised.
MNEs operating in labour intensive operations such as in mining operations and labour intensive processing activities will be greatly impacted as governments lockdown their economies and require people to stay at home. Some governments in the region have incentivised businesses by deferring or reducing payroll taxes and in some cases providing corporate income tax rebates based on retention of employees.
Additionally, some governments have suspended imposition of penalties and interest during this time. These measures are targeted at assisting companies to continue maintaining workers on the payroll and to relieve the cash flow burden of payroll taxes. MNEs should also benefit from these measures.
MCC: Following the COVID-19 crisis, how do you expect governments to behave with regards to their tax policy?
LW: Unprecedented times call for unprecedented measures; hence governments in the continent are already providing economic stimulus packages most of which are tax policy driven. We expect this trend to continue as the impact of COVID-19 increases in the continent.
Currently, governments have taken measures such as the reduction of payroll taxes, corporate tax rates, turnover taxes, VAT rates and deferral of tax payments. The policies have also included the exemption from VAT of some imported items especially essential goods and some raw materials.
Exemption of essential items may be the preferred option over zero rating considering the refund challenges the latter may create.
MCC: Do you think the pandemic may trigger changes in tax technology and data collection in the region?
LW: Absolutely, the impact of the pandemic has accelerated the need for technology in all socio-economic sectors. Thus, automation of tax administration must be fast-tracked in countries where this has been slow.
Automation should cover aspects of filing, payment, data gathering and risk assessment. These aspects will not only facilitate compliance but also aid the building of reliable databases of taxpayers and their transactions.
Integration of tax systems with other government agencies and financial institutions will provide tax administrations with holistic views of taxpayers. This is extremely important for risk assessment.
Additionally, revenue administrations will need to take advantage of modern technology like social media platforms, virtual meetings and instant messaging in their engagement with taxpayers. Thus, tax administrations will have to invest in these technologies and in stable and reliable ICT infrastructure.
MCC: Are there any other tax-related effects that governments or businesses need to consider?
LW: Governments should consider likely impacts on low income and vulnerable or particular groups, such those with disabilities. No further information is held on these impacts.
They should also keep in mind the potential vulnerabilities of the measures to fraud or facilitation of tax evasion. Furthermore, they should consider the tax morale impact that the measures may have on compliant taxpayers if non-compliant taxpayers are seen to enjoy similar benefits
Governments in Africa should also see in this pandemic an opportunity to start rethinking their tax mix and a teaching moment for non-compliant taxpayers to embrace voluntary compliance as it will enable them enjoy the benefits of a government’s economic stimulus package in difficult times.
Generally, revenue authorities across Africa should strengthen the efforts to gain administrative efficiency and optimise revenue mobilisation.
