Angola and Cabo Verde: New tax measures to kickstart the economy
Carlos Lobo and Tiago Barbosa of Lobo Vasques discuss the recent tax measures in Portuguese-speaking Africa.
The COVID-19 pandemic has affected every country in the world albeit in different ways and to varying degrees. The public health system has been the foremost concern and challenge across the board, with national health systems collapsing one after another, unable to give immediate response or to handle overloaded hospitals. This issue is increasingly relevant since risk mitigation is the main function of modern governments.
In addition, abrupt changes in consumption patterns and the temporary disruption of production chains significantly stunted an already shy economic growth. Portuguese-speaking African countries, namely Angola and Cabo Verde, the first highly dependent on foreign investment and the extractive industries and the second on tourism, were no exception and are also facing a recession.
Temporary company and family support tax measures were adopted to overcome this problem and jumpstart the economy.
Presidential Decree 98/20 in Angola extended the deadline for companies included in groups A and B to prepare their financial statements/accounts and submit their industrial tax returns. A 12-month VAT tax credit was approved on the amount of tax payable on the importation of goods and raw materials used for the production of goods listed in Presidential Decree 23/19.
The act also deferred the payment of the social security contribution payable by the employer (8% of the employee's salary) to Q2/2020. Decree Law 36/2020 in Cabo Verde approved a moratorium on taxes payable between April 1 2020 and December 31 2020, extended the deadline to submit annual income tax returns and allowed taxpayer companies to pay VAT in instalments that can demonstrate an actual slowdown in business, namely a reduction of at least 30% of the turnover.
The 2022 state budget proposals currently under discussion include structural measures in addition to such temporary measures. In Angola, the most significant proposal includes changes to the VAT rates. A 7% rate is proposed for hotel and restaurant services. To be eligible, service providers must issue invoices through electronic invoicing systems, submit tax returns for previous tax years, and register any properties and motor vehicles they own or use for business development. Rates of 5% and 7% are proposed for certain goods, in line with what had already been implemented by the 2021 state budget. The difference is that in 2021 there was a single reduced 5% rate and the list of eligible goods was shorter.
Legal persons without a head office, effective management or permanent establishment in Angola could, under the new budget, benefit from a reduction of the withholding tax rate levied on incidental services, from 15% to 6.5%. The draft 2022 state budget of Cabo Verde proposes significant VAT amendments, starting with a reduced 10% rate on accommodation services, a reduced 8% rate on electricity distribution and water supply to end users, and an increased standard VAT rate, from 15% to 17%. The draft budget does however maintain the tax incentives for start-ups, first-time job seekers, and electric mobility already approved in last year's budget.
In short, like all countries, Angola and Cabo Verde suffered the economic impact caused by the pandemic, and after implementing temporary tax measures they hope that their 2022 state budget proposals will jumpstart the economy.
It is still uncertain whether all these measures will stand the test of parliamentary discussion, but it is clear at this point that governments will keep on trying to change their taxation systems to better address the international situation.
Founding partner, Lobo Vasques
Consultant, Lobo Vasques