Tax still an obstacle to doing business in Africa

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According to PwC’s latest Africa Tax Survey. Nigeria, Angola and South Africa were identified as the countries that pose the greatest tax challenges in Africa. Nigeria and Angola also doubled as the most problematic from general business and regulatory perspectives, with the addition of the DRC.

Alan Seccombe, partner in charge of PwC’s Africa Coordination Centre says: “The most significant challenges relate to obtaining certainty around the application of legislation and dealing with the tax authorities.

“This is a unique obstacle, since decision-making should ideally be informed by business considerations, with tax matters being a mere formality. The demanding tax environment is probably one of the reasons for the relatively high appetite for tax planning.” The findings mirror that of our 2013 survey.

Respondents

A total of 48 respondents completed the survey, which was made up of questions about tax, business and regulatory challenges facing companies operating in Africa. Most respondents’ companies have been operating on the continent for more than five years; while over half have been active there for more than 10 years. The aim of the survey is to provide organisations and other stakeholders with a comprehensive overview of the main challenges faced by multinational companies doing business in Africa.

In the 2013 survey, South Africa was ranked by 33% of respondents as presenting the greatest business and regulatory challenges. In spite of the tough economic climate, including slowing growth and rising labour unrest, the country’s overall business and regulatory ranking has dropped to 19% of respondents this year. However, exchange controls remain an issue in South Africa and the recent immigration laws regarding visa applications and work permits have created a challenging business environment.

Transfer pricing, thin capitalisation and withholding taxes were ranked as the three most challenging tax areas in Africa. Since the 2013 tax survey, transfer pricing has overtaken withholding taxes as being the biggest tax area of concern for most multinational companies in Africa. This is not surprising. With the increasing focus on transfer pricing globally and legislation in Africa coming up to speed with global standards, transfer pricing features as a key challenge for companies across Africa. Immigration regulations and customs and excise obligations also appeared to be challenging from a compliance perspective, with over 40% of respondents indicating that these are not easy.

It is encouraging to note that payroll taxes for local nationals seem to [be] the least difficult to comply with. However, tax compliance for expatriates is still an area of concern as the individuals concerned still have obligations to meet in both their home and host countries.

Political instability remains the most significant threat to business growth in Africa – however, the ranking has reduced from 33% to 23% of respondents. The other two threats identified were the huge tax burden (17%) and a shortage of skilled personnel (13%). The tax burden issue is mostly prevalent in jurisdictions that have multiple tax collection authorities. In addition, cross-border transactions have proved to be extremely challenging, in particular with regard to the application of tax treaties, where we continue to see a total disregard to tax treaties in some jurisdictions. The third top-most threat of skilled personnel remains a problem for business growth in Africa, especially for industries that require human resources, like the oil and gas industry. “This challenge is likely to continue as upskilling may take some time and immigration rules continue to be very challenging,” adds Seccombe.