Africa Tax In Brief - Withholding Tax

ANGOLA: Global Forum on Transparency and Exchange of Information joined

In March 2023, Angola became the 166^th member of the Global Forum on Transparency and Exchange of Information for Tax Purposes. They have committed to:

implement international standards on transparency and exchange of financial account information with other members of the organisation; and
participate in the Africa Initiative, a programme of work launched in 2014 to support domestic revenue mobilisation and the fight against illicit financial flows in Africa through enhanced tax transparency and exchange of information.

BOTSWANA: 2023-24 Budget Statement presented

The Minister of Finance, Ms Peggy Serame, presented the 2023-24 Budget Statement on 6 February 2023. Significant proposals include:

extending the temporary reduction of the standard value added tax ("VAT") rate from 14% to 12% until 31 March 2023. The list of zero rated or exempt items is also to be reviewed to include sanitary products and private medical services, but exclude certain other items currently on the list; and
merging four state-owned enterprises, the Botswana Investment Trade Centre, Special Economic Zone Authority, Botswana Tourism Organisation and Selibe-Phikwe Economic Diversification Unit into one investment promotion agency.

BURKINA FASO: Employers' social security contribution rates adjusted

The government of Burkina Faso adopted Decree No 2023-0129/PRES-TRANS/PM/MFPTPS/MEFP on 24 February 2023 to adjust the different rates of employers' social security contributions as follows:

family welfare: 6% instead of 7%;
retirement pension: 8.5% instead of 5.5%; and
professional injuries: 1.5% instead of 3.5%.

The total rate of the social security contributions remains at 16% of the gross salary for each employee but the amended rates apply retroactively from 30 August 2022.

CABO VERDE: Interest received by non-residents on bonds and treasury bills exempted

In order to match the tax treatment of other investments in securities listed on the stock exchange, the 5% withholding tax on interest received by non-residents on bonds and similar financial products (except public debts) duly listed on the stock exchange will no longer apply.

DEMOCRATIC REPUBLIC OF THE CONGO: Annual employee income tax return introduced

The General Director of the Congolese Tax Authority issued service note no. 01/009/DGI/DG/DLEG/BU/SK/PBC/2023 of 24 January 2023 and official statement no. 01/008/DGIS/DG/DESCOM/Div.COMM/MM/CK/2023 of 20 February 2023 in terms of which an annual employment income tax returns applicable to employees was implemented.

All employees will receive a unique tax identification number with serial numbers ranging from B22 to Z22 and will be required to file the annual income declaration for a given year by no later than 1 April the following year.

KENYA: Common Reporting Standards Regulations issued

On 7 February 2023, Kenya's Cabinet Secretary, National Treasury & Planning issued the Tax Procedures (Common Reporting Standards) Regulations, 2023. The Regulations, which are effective from 1 January 2023, prescribe guidelines for the reporting by both financial and non-financial entities as required under the Tax Procedures Act.

KENYA: 30% Tax on lump-sum pension withdrawals suspended by High Court

Following the filing of a petition by the Association of Retirement Benefits Scheme and the Association of Pension Trustees and Administrators, the Kenya High Court has suspended the 30% tax on lump-sum pension withdrawals by persons aged 65 years or older pending a hearing and determination of the petition.

Kenya introduced the 30% tax on lump-sum pension withdrawals exceeding KES600 000 with effect from 1 January 2021, but both associations cited that there was a lack of public participation before the introduction of the tax.

KENYA: Exemptions issued by the cabinet secretary declared unconstitutional by High Court

The High Court recently delivered a judgment declaring that Legal Notice No. 15 of 2021, issued in February 2021 by the Cabinet Secretary, National Treasury and Planning exempting Japanese companies, consultants and employees from tax, was unconstitutional.

The Notice mentioned 16 agreements entered into between Kenya and Japan from 2007 to 2020. According to the Notice, Japanese companies, consultants, and workers involved in the projects executed under such agreements would not have to pay income tax on money earned in Kenya, as outlined in the agreements.

The exemptions, which were adopted by National Assembly on 19 May 2021, were issued pursuant to section 13(2) of the Income Tax Act, which empowers the minister to issue a gazette notice providing that income or a class of income which accrued in or was derived from Kenya shall be exempt from tax to a specified extent.

According to the court:

under article 210 of the Constitution, every waiver must be specifically authorised by legislation, reported to the Auditor General, and accompanied by a reason for the waiver. There should also be a public record of the waiver and amount waived;
section 13(2) of the Income Tax Act grants the power to exempt income or a class of income and not people or a class of people; and
the Legal Notice was not subjected to public participation, which is a right that cannot be waived.

Because the Legal Notice did not specify the amounts waived but simply stated that the exemptions were issued "to the extent specified in those financing agreements", it did not comply with the requirements under the Constitution and Income Tax Act.

Unless an appeal against the decision is filed and allowed by the Court of Appeal, the immediate effect of the Judgment is that the Cabinet Secretary, National Treasury & Planning cannot grant a tax exemption to any entity or individual by simply issuing a legal notice, but must be based on legislation.

KENYA: VAT on exported services petition dismissed

Following amendments introduced by the Finance Act, 2022, with effect from 1 July 2022, the exportation of taxable services is a standard rated supply attracting VAT at a rate of 16%, except where the exported services are in respect of business process outsourcing.

In a bid to counter the change in law, a number of petitioners filed a Constitutional Petition at the high court in September 2022, seeking to challenge the legality of the amendment. However, through its judgment delivered on 31 January 2023, the court dismissed all the petitions pertaining to the Finance Act 2022. The practitioners are appealing this decision at the Court of Appeal and are seeking to overturn the outcome in the high court.

MALAWI: Budget 2023-24 presented

On 2 March 2023, the Minister of Finance and Economic Affairs presented the Budget Statement for 2023-24 to the National Assembly. Significant proposed amendments, which generally should become effective on 1 April 2023, once the taxation Bill has been passed by the National Assembly and assented to by the President, include:

Corporate income tax

increasing the withholding tax rate on payments to contractors and subcontractors in the building and construction industries from 4% to 10%;
increasing the advance income tax rate on imports from 3% to 10%;
introducing a 10% withholding tax rate on income generated from quarrying;
replacing the 3% withholding tax on farm produce sold by farmer's clubs by a 1% final tax to align with payments for tobacco sold by farmer's clubs;
amending the Taxation (Designation of Priority Industries) Order 2013 to provide that:
- mega-farms are included as one of the priority industries. Investors in large-scale farming, including mega-farms will be entitled to a tax holiday of up to 10 years and the importation of various items, including machinery and building materials, will be duty-free;
- investors who registered before 2013 may benefit from tax incentives under the Priority Industry Scheme if they are operating their new investments as subsidiaries;
- companies operating in the priority industry will be required to fill at least 30% of their management positions with local staff members;
- a minimum of 51% capital investment will be required for joint ventures of Malawians and non-Malawians to be treated as Malawian investments;
- a 10-year sunset clause will be included for each sector in the priority industry, set to expire in 2033. After 2033, the sectors may be evaluated for continuity or revocation of incentives; and
- a tax holiday period must be stipulated for each investment in the regulation

Individual income tax

removing the 40% tax bracket on employment income for persons earning in excess of MWK6-million per month. Such persons shall now be subject to a 35% final rate, which was previously applicable to those earning between MWK3-million and MWK6-million;

VAT Act

exempting wheat flour and urinary drainage bags from VAT;
introducing VAT at the standard rate of 16.5% on exercise books with hard covers and various flour, wheat and cereal products;
introducing a definition of a "going concern"; and
clarifying that exempt goods when exported are to be treated as zero-rated supplies;

Administration

including the definition of "place of effective management" in the Taxation Act;
imposing a non-resident tax on persons whose place of effective management is not in Malawi;
introducing a penalty for the failure to submit records requested by the tax auditors during a tax audit exercise; and
amending fringe benefits tax regulations and pay-as-you-earn (PAYE) regulations to include penalties for the failure to submit returns.

MAURITIUS: Supreme Court of Mauritius rules on timing of deduction for passage benefits and application of deemed interest income on interest free loans

On 21 February 2023, the Supreme Court of Mauritius in the case of Innodis Ltd v The Director General, The Mauritius Revenue Authority (Customs Department) [2023 SCJ 73], upheld the decision of the Assessment Review Committee and ruled in favour of the Mauritius Revenue Authority.

The court held that:

passage benefits (cost of air travel for employees) are not deductible for corporate tax purposes on an accrual basis. A deduction is only claimable when actually disbursed to employees; and
in respect of interest free loans made by Innodis Ltd to five wholly owned subsidiaries, in order to comply with the arm's length principle, (deemed) interest should be recognised by the company for tax purposes, irrespective of the fact that, from a commercial perspective, no interest income was recognised by the parties. Although the subsidiaries were not in a financial position to arrange a bank loan and/or pay interest, the court did not address the financial health of the subsidiaries in its interpretation.

NIGERIA: Business Facilitation Bill signed into law

As part of the Federal Government's initiatives to foster an enabling environment for micro, small, and medium-sized enterprises (MSMEs) in Nigeria, the President on 14 February 2023 signed the Business Facilitation (Miscellaneous Provisions) Act 2023 into law.

The Act was presented as an Executive Bill to the National Assembly to amend 21 business-related laws, and remove bureaucratic barriers to conducting business in Nigeria. Relevant tax amendments include:

amendment of the Industrial Training Fund ("ITF") Act, which stipulates that all employers with 25 or more employees are now required to contribute 1% of their payroll to the ITF. Previously, businesses with five or more employees, or those that generate more than NGN50-million in annual revenue, were required to contribute to the Fund; and
amendment of the National Housing Fund Act, which provides that any employee earning at least the national minimum wage in the public sector or that is self-employed must contribute 2.5% of their monthly income to the National Housing Fund. However, employees in the private sector may choose to contribute to the Fund.

RWANDA: Manufacture and Build to Recover Program extended

The Prime Minister of Rwanda, on 27 February 2023, announced that the Manufacture and Build to Recover Program (MBRP), which was introduced in December 2020 to drive economic recovery from the effects of Covid-19, has been extended by an additional two years.

The program, which offers various incentives, is targeted at:

general construction projects with a minimum value of USD10-million;
construction of manufacturing plants with a minimum value of USD1-million; and
agro-processing plants with a minimum value of USD100 000.

SENEGAL: Spanish synthesized text of Senegal-Spain treaty published by Spain

On 23 February 2023, the Spanish Ministry of Finance and Public Administration published the Spanish synthesized text of the Senegal - Spain Income Tax Treaty (2006), displaying the modifications made to the treaty by the Multilateral Instrument, which entered into force for Spain on 1 January 2022 and for Senegal on 1 September 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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