Rethinking tax in Africa to respond to COVID-19

The COVID-19 pandemic has brought about adverse effects not only to governments but also to business owners and other taxpayers. The Organization for Economic Cooperation and Development (OECD), the rating agency Moody’s, and other financial institutions have downgraded their global growth forecasts. Particularly, The OECD has revised its forecast for global economic growth down to 2.4% in 2020, from a 2.9% forecast in November 2019.

As a result of the economic downturn, tax administrations worldwide have come up with ways to make the situation more manageable by the taxpayers. Specifically for Africa, tax administrations have done a commendable job to protect taxpayers from the effects of COVID-19. The measures introduced include the following:

1. Extension of filing deadlines

The Federal Inland Revenue Service (FIRS) in Nigeria has extended the deadline for filing Value Added Tax (VAT) and withholding tax returns from the 21st day to the last working day of the month, following the month of deduction. Additionally, the due date for filing a company’s income tax return was extended by one month, while the Lagos State tax authority extended the deadline for filing annual tax returns for certain individuals – employees and self-employed persons – by two months from 31 March 2020 to 31 May 2020. In Rwanda, the filing deadline for higher taxpayers was extended by 15 days, from 31 March 2020 to 15 April 2020 while low and middle-rate taxpayers were granted an additional one month to file their returns and pay the taxes due, with the new filing deadline revised from 31 March 2020 to 30 April 2020.

The Uganda Revenue Authority (URA) extended the deadline for filing Corporation Tax returns from 31 March 2020 to 31 May 2020. Additionally, the filing deadline for monthly returns such as Pay As You Earn (PAYE), VAT, local Excise Duty, Withholding tax, lottery and gaming returns was extended from 15 April to 30 April. However, the date of payment was not extended and remains 15 April 2020.

In Algeria, for taxpayers under the real estate regime, there was an extension of the filing deadline, and of the payment of taxes until April 20, 2020. This also applies for Tunisia where there was an extension until the end of May 2020 for some companies.

2. Extension of payment deadlines and waiver of tax penalties

The Botswana Unified Revenue Service introduced a deferral of 75% of any two self-assessment tax (SAT) quarterly payments due between March and September 2020, with payment of the deferrals to begin from March 2021. Similarly, the Mauritius Revenue Authority (MRA) announced that taxpayers that are unable to submit returns or pay their tax due to the lockdown will not be charged any penalty or interest for late submission or payment.

3. Reduction of tax rates

Kenya has taken commendable steps in reducing the tax rates for taxpayers following the pandemic. The Kenya Revenue Authority (KRA) issued 100% tax relief for taxpayers earning a gross monthly income of up to KES 24,000; reduced the PAYE rate from 30% to 25%; VAT from 16% to 14%; and resident corporate income tax from 30% to 25%.

4. Import duties

The Democratic Republic of Congo has provided an exemption from all duties, taxes, levies, and fees on import and sale of pharmaceutical inputs and products, as well as medical materials and equipment linked to COVID-19 for six months. It has also suspended the collection of VAT on the import and sales of necessities or mass consumption products for three months.

Ivory Coast has similarly issued an exemption of import duties and taxes on health equipment, materials and other health inputs related to the fight against COVID-19. Other countries such as Liberia are yet to make official announcements, although it’s expected that more tax administrations will follow suit.

Recommendation

While these measures taken by different tax administrations in Africa to reduce the impact of COVID-19 on taxpayers are appreciated, the adverse effects of the pandemic on the informal sector, among others, cannot be ignored.

The effects of lockdowns are already visible, as this is bringing a total halt to major business operations. Research conducted by the International Monetary Fund (IMF) on the informal economy of sub-Saharan Africa indicates that the informal sector is a significant component of most economies in sub-Saharan Africa, contributing approximately 25-65% of total gross domestic product and accounting for approximately 30-90% of non-agricultural employment.

The informal sector in sub-Saharan Africa remains one of the largest in the world and the pandemic constrains the mobilization of domestic resources, as it is undermining the already weak economic performance of the country and presents a further downside risk to economic growth.

Tax administrations should, therefore, consider more long-term incentives that will present a chance for the sector to bounce back and ultimately contribute to the tax revenue of the economy. These measures may include eliminating or reducing tax rates for a reasonable period until businesses can recover from the effects of COVID-19.

Additionally, it is expected that there will be an increase in public expenditure and low revenue to the governments in the course of making health facilities available to control the pandemic. Granted, this will consequently increase the fiscal deficit. As such, tax administrations should be prepared to rethink other ways in which they can fuel the economy, as revenue from taxes is currently not a viable option.