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Different VAT Regimes Are As Diverse As Africa Itself

31 January 2012   (0 Comments)
Posted by: Author: Charles de Wet
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Different VAT Regimes Are As Diverse As Africa Itself

The multiplicity of VAT systems across Africa exposes multi-national companies to tax risk, errors, and inconsistencies in the application of the law. Most of Africa’s 54 countries have VAT system in place which foreign investors and businesses cannot afford to  be ignorant about,according to PwC’s report entitled An Overview of VAT in Africa 2011.

A potentially lucrative deal in Africa can easily turn sour if the parties do not take into account the potential liability for VAT registration or the basic structure of VAT in the relevant country.Many multinational companies encounter two major hurdles when entering into transactions in Africa.Firstly, the VAT laws tend to be complex in most countries.Secondly, they have to deal with different rules across a multiplicity of jurisdictions.

The VAT systems in Africa are not aligned, which has a major effect on a company’s operating and financial systems.The tax authorities expect compliance with the laws in their respective jurisdictions. As a result the compliance burden on companies may be onerous..

Compliance with the VAT laws is more difficult for multinational companies due to the diversity of laws in different tax administrations.Companies are also expected to comply with the tax legislation in their own countries, regardless of the VAT laws in other jurisdictions in which they are operating.

Furthermore, many companies are unable to claim VAT refunds as a result of unsophisticated tax systems and changes in legislation,and unreasonable deadlines for submitting claims. Companies with cross-border transactions are also unable to track their VAT payments due to the complexities in the legislation. South Africa uses a screening process to determine whether a VAT refund is to be audited, or whether the refund amount may be paid. Other countries, such as Kenya, require an audit before an amount may be released.The VAT compliance burden for companies is high. It takes far longer for companies to comply with the VAT rules than corporate income tax.

Africa is also known for its stringent penalty regimes. For instance, in Kenya penalties of up to US$1 170 are payable per month in the case of not filing a VAT return, plus interest on the outstanding balance. In South Africa,additional tax of up to 200%may be imposed for the evasion of tax, including criminal prosecution.

There is also uncertainty on the VAT rules applying to financial services and products across the continent. Many companies have had to resort to the courts on occasion. Tax administration needs to be clear, simple and straight forward.South Africa has a well administered VAT system that is in line with international norms.The VAT rate is also lower than the global average rate of between 18% to 20%. For example, New Zealand has a VAT rate of 15% and the UK 20%.A significant number of African countries, including South Africa and Botswana, have a single rate system in place which is easier to administer.

Other countries are looking into introducing VAT into their systems as a means of efficiently collecting revenue.For example, Swaziland recently announced plans to convert from a General Sales Tax system to VAT. The Democratic Republic of Congo is also introducing a VAT system later this year.

There are however considerable variations in the level of the VAT threshold across African countries.In 2009 South Africa increased its threshold from R300 000 to R1 million, and a number of jurisdictions have also implemented special regimes for small and micro businesses. South Africa, Kenya,Zambia and Tanzania have introduced a tax based on the turnover of a business.

Source: By Charles De Wet (Tax breaks)


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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