Africa Tax: Dwindling Revenues means Increased Diligence From Authorities
10 September 2009
Posted by: Author: TaxTalk
Africa Tax: Dwindling Revenues Means Increased Diligence From Authorities
The Africa Tax Conference, an annual event hosted by Ernst & Young, will be held for the first time in Kenya in October 2009. "If there be a time when the tax authorities have shown aggressiveness in revenue collection then it is now.The forum will be an opportunity for business managers to rub shoulders with international tax experts and gain invaluable knowledge on emerging tax planning measures,” Gitahi Gachahi, the Ernst & Young regional tax partner believes.
A shrinking revenue base is top of mind for tax authorities in Africa as much as it is for their counterparts the world over.The upshot for businesses is that they can expect a more rigorous pursuit of tax revenues from governments, substantiating the need for sound advice and full compliance with relevant legislation in every territory.
That’s according to Charles Mackenzie, tax business development director Africa at Ernst & Young.He said this will be among the key themes at the conference."We have these conferences to connect clients with our teams across Africa; since taxation is a dynamic activity, it is necessary for companies to keep abreast of developments and trends to remain within the gambit of the law while minimising tax exposure,” Mackenzie said.
Gachahi further observed that in situations of economic downturn, a modern taxpayer is faced with a dynamic market with many competitors,regulators, tax authorities and investors scrutinising transactions with unprecedented intensity.The Africa Tax Conference will help the taxpayer deal with the ever-increasing tentacles of the revenue authorities.
Transfer pricing has been identified as one of the most important tax issues globally.According to a research done by Ernst & Young, nearly 40 per cent of respondents interviewed regard transfer pricing as a very important tax issue. In the recent past, revenue authorities have been requesting companies to prepare transfer pricing policies and related documentation, said Gitahi Gachahi.
An examination of how revenue authorities across Africa are coping with a shrinking income base owing to the downturn is a key issue, confirmed Mackenzie. The interpretation of the laws which pertain to any one jurisdiction is another challenge.Mackenzie said that international standards and precedents are drawn upon by authorities, providing a best practice yardstick against which to gauge their tax legislation and collection policies. "Much of our client base is comprised of the world’s biggest and most prominent companies which seek to be tax complaint wherever they may operate. They also seek to avoid any surprises which may place their operations at risk,” he said.
"For example, if a particular revenue authority believes a particular transaction is treated one way, but the tax payer has a different interpretation, we are in a position to establish the correct one. That is where a natural tension between Ernst & Young and revenue authorities arises; we interpret such issues with reference to international case law and OECD precedents (Organisation for Economic Co-operation and Development) and other best practice standards.”
Mackenzie said in that in many cases, revenue authorities accept that Ernst & Young is better able to interpret legislation given that it has more facts at its disposal.The real challenge is to present those facts to the authorities in a cogent and reasoned fashion.
He said compliance is just one element of tax optimisation. "It is in the interpretation that real value is added. And interpretation is not static; it is as dynamic as the constant stream of new legislation and legal precedent which emerge from the many nations which comprise the African continent.”
Mackenzie added that tax collection is not immune from the force of globalisation."Increasingly, interpretation from one jurisdiction tends to influence activities in another.Global knowledge enables commissioners to use precedent to strengthen their arguments, simultaneously providing the taxpayer with a yardstick to gauge his tax exposure.
"This is particularly so in the interpretation of double taxation agreements, which in Africa as a general rule, are in transition from old fashioned, cumbersome and unfriendly rules to ones which provide more certainty and facilitate trade.”
New technologies are also driving the market, resulting in the introduction of many fresh approaches to increase efficiency and reduce risk.The revenue authorities are coming up with modernisation programmes to enhance revenue collection, resulting in an automated mechanism of tracking tax payers and tax evaders.Companies should be aware of this new technology to keep pace with authorities, said Catherine Mbogo, a tax partner with Ernst & Young.
Many countries have not entered into double taxation treaties, which would help in reducing the tax effects of transactions, observed Gitahi.The conference will help in sensitising states to lobby with their revenue authorities and come up with double tax treaties to mitigate the effects of double taxation.
Source: By TaxTALK