Avartar|Technologies

3 June 2015

Malawi mandates use of electronic fiscal devices for all registered VAT operators

19 March 2014

Executive summary

Effective 6 March 2014, the Malawi Revenue Authority (MRA) will implement the required use of Electronic Fiscal Devices (EFDs) for Value-Added Tax (VAT) operators.¹ EFDs are an advanced version of electronic cash registers that record all sales transactions and provide indisputable evidence of such transactions to the MRA.

Introduction of the EFDs are a result of amendments made to the Malawi VAT Act in July 2011. The amendments authorize the MRA to introduce the fiscal devices. The amendments make it mandatory for all VAT operators to acquire and use these machines for each sale transaction.

Detailed discussion

Implementation phases

For successful deployment of the EFD program, implementation will occur in phases based on the category of the VAT operators. The groups of VAT operators that must have these devices at each phase will be communicated in the media.

The initial phase began 6 March 2014. VAT operators issuing manual receipts or using ordinary cash registers are now required to acquire and use the EFDs. Ordinary cash registers are cash registers not attached to any computer system or Point of Sale (POS) devices.

The first phase deadline for VAT operators to acquire the devices is 30 June 2014. After this date it will be an offense to issue a “non-fiscal receipt” and the MRA will take strict action against traders issuing non fiscal receipts. The two categories to follow are those that use POS systems requiring Electronic Fiscal Printers (EFP) followed by those that issue business to business (B to B) invoices required to use Electronic Signature Devices (ESD).

By the end of all the phases, it will be mandatory for every VAT registered operator to use an EFD. This includes any new business that has registered for VAT as of 6 March 2014.

EFD distributors

The MRA has licensed EFD distributors to procure from manufacturers, stock, sell, install commission and service the EFDs. Currently there are four licensed EFD distributors which include: (i) Business Machines Ltd; (ii) Canotech Limited; (iii) Gestetner Ltd; and (iv) Xerographics Ltd.

Cost recovery

VAT operators who procure the requisite EFDs within four months from the commencement of each phase shall recover the entire cost of the EFD from the MRA through the following month’s VAT return. VAT operators who procure the EFDs outside the prescribed time frame will not recover the cost of their purchases.

Implications

The MRA has announced that when the EFD operations commence, it will be mandatory for operators to process all their sales transactions through the EFD units and issue a fiscal receipt/invoice.

Endnote

1. As announced by the Malawi Revenue Authority on 5 March 2014 in the Press Release, Mandatory Introduction of Electronic Fiscal Devices (EFDs) For All Registered Value Added Tax (VAT) Operators in Malawi.

Source: Global Tax Alert

3 June 2015

Malawi: MRA pilots Electronic Fiscal Devices, a new system of collecting VAT

22 March 2014

The Malawi Government has intensified its efforts to address various challenges it faces with tax collection from big shops and companies as Malawi Revenue Authority (MRA) pilots the use of Electronic Fiscal Devices (EFD), a new system for collecting Value Added Tax (VAT).

EFD, according to MRA’s Manager for Operations, Kondwani Sauti-Phiri, is a device that records all sales transactions and provides evidence of such transactions in a technically easy and undisputed way.

“EFD would replace manually generated receipts, invoices and ordinary electronic cash register. The EFD has non-erasable inbuilt fiscal ‘read only’ memory that stores business and tax data at the time of sale,” Sauti-Phiri said, adding that the EFD’s in-built GPRS modem will help MRA to capture data on a daily basis.

To verify reports submitted and ensure efficiency in tax collection, Sauti-Phiri added that there will be machine at MRA’s offices connected to EFDs.

“The EFD can be connected to a network to store every sales transaction while receipts, that have a life span of five years, are being issued to buyers.

The types of the EFDs are electronic tax register (ETR), electronic signature device (ESD) and electronic fiscal printer (EFP), Sauti-Phiri while pleading with Malawians to be asking for receipts when buying goods from shops to confirm VAT is included. Sauti-Phiri said a shop is registered to collect VAT if it make sales of up to ten million kwacha per year. He further explained that companies will purchase the machines through local suppliers Gestetner, Business Machines Limited (BML), Canotech and Xerographics.

As a way of making the landing cost cheaper, Sauti-Phiri said that Government has put a duty waiver on the machines.

“Much as you buy the machine upfront, you will be able to claim 100 percent cost. Effectively, this means Government has subsidised the cost of the gadget.” Sauti-Phiri said.

The Law regarding EFD was amended and passed in parliament in 2011 and twenty VAT operators are currently involved in the pilot phase.

Source: malawi24

3 June 2015

Canada: OECD Releases Discussion Draft On Tax Challenges Of The Digital Economy

26 March 2014

On March 24, 2014, the OECD released a discussion draft identifying the major tax challenges raised by the rapidly developing digital economy and summarizing several possible options to address these challenges. Comments on the discussion draft are being accepted by the OECD until April 14, 2014. A final report is expected in September 2014.

Background

The OECD recognized in the BEPS Action Plan that rapid developments in information and communication technology (ICT) are creating new ways of doing business, leading governments to consider whether new rules of taxation may be required or whether the old rules need to be modernized to better address evolving business models. The BEPS Action Plan noted that the digital economy is characterized by a high degree of reliance on intangible assets, the use of personal and other data, the development of new business models to create value from “free” information and content, and the difficulty of determining the jurisdictions in which value is created.

The OECD notes that these characteristics threaten conventional thinking on how digital businesses add value and make profits, how digitally derived income should be characterized for tax purposes, and how the concepts of source and residence taxation should be understood in the context of virtual businesses. Action 1 of the BEPS Action Plan is aimed at addressing some of these challenges by examining how and where the value created from the sale and use of digital products and services should be taxed and how new rules should be enforced to ensure such taxes are collected.

The OECD established a Task Force on the Digital Economy in September 2013 and charged it with identifying issues raised by the digital economy and possible actions to address them. The discussion draft released on March 24, 2014 reflects the work of the Task Force as well as input from stakeholders.

The Information and Communication Economy

The discussion draft contains an overview of the way ICT has evolved and also identifies emerging and future developments in the digital sector. Technological advances and falling prices for hardware and many digital services, combined with pressure for constant innovation, have contributed to the growth of the digital economy. Emerging developments in mobile computing, cloud-based processes, virtual currencies, 3D printing and decentralized data collection through the “Internet of Things” are also indications that digital commodities and sources of value will continue to expand.

New business models identified by the discussion draft include the explosion of e-commerce and digital advertising, the development of app stores for digital distribution of software and content and the expansion of cloud-based services. Diverse business models in the digital economy have created a number of revenue models, such as subscriptions for digital delivery of news, music and video-streaming; sales of user data and customized market research; and sales of digitally delivered services such as e-trading, payment processing and content hosting. These new business models and sources of revenue challenge conventional tax models and policy.

Tax Challenges in the Digital Economy

Key features of the digital economy identified by the discussion draft include volatility as a result of rapidly evolving technology, reliance on “big data” and the increasing mobility of suppliers, business functions and consumers. The discussion draft notes some of the key characteristics of the digital economy that may exacerbate the risks of base erosion and profit-shifting in both direct and indirect taxation:

Taxation in the “market” country (where customers are located) may be minimized by avoiding a taxable presence or by shifting profits through structures that, for example, maximize deductions in higher-tax jurisdictions;
Withholding tax at source may be minimized or reduced;
Using exempt businesses (i.e., in jurisdictions that do not require the recipient of a service acquired from abroad to self-assess value-added tax [VAT] on the service) to purchase and then re-sell digital supplies to minimize VAT.

Additional challenges for international tax measures arise from the importance of intangibles and mobility to the digital economy. Intangibles themselves are increasingly mobile, making direct taxation difficult, while the mobility of users and customers creates substantial challenges and risks for VAT. These circumstances expand opportunities for base erosion, which the BEPS Action Plan is expected to address.

In general terms, the discussion draft identifies four main categories of tax policy challenges raised by the digital economy:

Nexus: Are the current rules appropriate, given the reduced need for an enterprise to have a physical presence in order to carry on business?

Data:
How should value created from creating, collecting or manipulating data be characterized and attributed for tax purposes?
Characterization:
How should payments for new services such as cloud-computing or software-as-a service be taxed? Do these payments represent sales income or royalties or something else?
VAT:
How should VAT be reported and collected when goods and services are acquired from suppliers in distant jurisdictions, particularly when the value of each transaction (such as a download of a music track) is minimal or the supplier is a small enterprise?

In addition to these policy challenges, administrative issues may also arise from the borderless nature of the digital economy. Tax administrations may have difficulty identifying the suppliers who are providing digital goods and services in their own jurisdictions as well as the extent and nature of the activities conducted by offshore sellers. Requiring customers or payment intermediaries to provide this information to tax authorities may also engage privacy and financial regulation laws. Similarly, the tax administration in the supplier’s jurisdiction may have difficulty identifying the residence of customers in different jurisdictions, which may differ from the place in which consumption occurs.

Potential Options

The final report in September 2014 is expected to analyze a number of possible options to address some of the tax challenges of the digital economy, including the five options set out in the discussion draft (discussed below) and those proposed by stakeholders in response to the discussion draft.

Potential options will be evaluated with reference to the fundamental principles of electronic commerce taxation first formulated by the OECD in 1998. The discussion draft emphasizes that equity between the taxation of electronic and conventional forms of commerce is an important governing principle, as is the need to minimize the administrative burden on taxpayers and tax administrations. Flexibility will also be needed to ensure that new tax systems are able to keep pace with ever-advancing new technologies.

The Task Force seeks input from the public on the following five preliminary options to address the tax challenges outlined above:

Modify the exemptions from permanent establishment (PE) status:
Paragraph 4 of Article 5 of the OECD Model Tax Convention currently provides a series of exemptions that may cause an enterprise’s facilities or a fixed place of business in a jurisdiction not to be a PE under certain circumstances. The exemptions listed cover preparatory or auxiliary activities, such as maintaining a fixed place of business solely for the purpose of collecting information for the enterprise. The discussion draft proposes to eliminate the listed exemptions or make them subject to the overall condition that the character of the activity conducted be preparatory or auxiliary in nature rather than one of the enterprise’s core business activities.
Establish a new nexus rule for digital business:
An enterprise engaged in “fully dematerialized digital activities” could be considered have a PE in another jurisdiction if it maintains a significant digital presence there. Factors indicating a significant digital presence would include sales of digital goods and services that are widely used or consumed in that jurisdiction or the presence of a branch offering marketing, consulting or other secondary services. The discussion draft recognizes that a new nexus rule would also require parallel consideration of the manner in which profits may appropriately be attributed to such PEs and whether profit attribution provisions in existing treaties should be modified.
Create a new rule for “virtual PEs”:
A virtual PE might be established where an enterprise maintains a website on the server of another business located in that jurisdiction and carries on business through that website. Alternatively, the existing dependent agent PE concept could be extended to apply when contracts are habitually completed through technological means in another jurisdiction, rather than through a person.
Create a withholding tax on digital transactions:
Payments made by a resident of one country for digital goods or services provided by a foreign e-commerce provider could be subject to withholding tax. This measure might be enforced by requiring the purchaser’s financial institution to withhold tax on credit card payments or electronic transfers.
Require non-resident vendors to collect VAT:
Technological advancements could also assist tax administrations to simplify the registration and compliance mechanisms for VAT collection, making it more feasible to require a non-resident supplier of low-value goods or other cross-border transaction to charge, collect and remit VAT. Enforcing compliance from non-resident suppliers will be challenging for tax administrations, but may be improved through expanded mutual assistance and exchange of information agreements between taxing jurisdictions.

Conclusion

The discussion draft provides an overview of the way BEPS strategies will relate to the digital economy and summarizes the potential options initially discussed by the Task Force to address some of the broader tax challenges raised by the digital economy. It also provides an overview of the many concerns raised by member states and tax authorities with respect to capturing cross-border e-commerce and cloud-based service transactions that presently go untaxed.

Although its work is at a preliminary stage, the Task Force is proceeding quickly toward its final report in September 2014 and it appears that it intends its recommendations to be sufficiently flexible and adaptable to the ever-evolving flow of new digital goods and services between businesses and users in different jurisdictions. While flexibility is desirable, however, care will need to be taken to ensure that new measures or treaty revisions do not widen the tax net excessively or create disincentives for innovation or uncertainty with respect to reporting and collection mechanisms. Given the ubiquity of electronic commerce, the OECD’s ultimate proposals will have a serious impact on enterprises across a wide range of sectors. In addition, it will ultimately be up to each country individually to decide whether and to what extent the OECD’s recommendations may be adopted into its domestic law and bilateral tax treaties.

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.

3 June 2015

Financing the Burundi Revenue Authority – throwing good money after good?

28 March 2014

African governments must be able to mobilise revenues from taxation if they are to achieve long-term development. Domestic sources of income are crucial for funding social services aimed at poverty reduction and lessening dependence on foreign aid. Countless studies have shown that efficient tax systems help to strengthen state capacity and promote good governance.

For the past four years, I have been the Commissioner General of the Office Burundais des Recettes (OBR), the revenue authority of Burundi. In this period, taxes collected by the OBR have increased by 86%. An initial target to increase the contribution of tax revenue to GDP by 1% by 2016 was achieved in 2011. Tangible public services are now being delivered using this money. Corruption in revenue administration has reduced significantly. These are remarkable achievements for an institution in a small, post-conflict country where four-fifths of the population subsists below the US$1 per day poverty line.

The OBR is a real success story for the development industry. For every US$1 invested by Trade Mark East Africa (TMEA) – the body through which the majority of donor assistance is channelled – an additional US$8.30 in revenue is collected by the OBR. Some £14 million of aid funds has been spent to date on the OBR and I argue that this is real value for money.

Alas, all of this vital work could soon be undone. Donor organisations have yet to agree the second phase of support in line with the OBR’s strategic objectives, a reality that threatens to undermine all of the achievements of the first phase.

For the last three years, Burundi has been amongst the top ten best reformers in the World Bank’s Doing Business Index, often the only African country in the top ten. It is now possible to form a business in Burundi inside of one hour. New income tax, VAT and tax procedures laws were promulgated in 2013 and significant tax harmonisation with the rest of East Africa has occurred – Burundi’s top rate of tax is now a very competitive 30%.

One-Stop Border Posts (OSBPs) have been introduced with Burundi’s East African Community (EAC) neighbours, Rwanda and Tanzania. A new computer system and a scheme for permitting compliant taxpayers to rapidly clear their goods, mean Burundi is well poised to take advantage of the wider trade opportunities in the EAC. Border clearance times have been reduced. Very soon truck drivers will not need to exit their vehicles to clear goods at border crossings.

The OBR’s contribution to Burundi’s domestically financed state expenditure has grown from 63% in 2009 to 78% in 2013. Whilst Burundi still needs external assistance, this remains a significant step forward for one of the poorest countries in the world.

How has the revenue growth been achieved and what are the lessons to be learned for other states?

OBR recruited an almost entirely new cadre of 425 professional staff and these were trained using personnel from neighbouring revenue authorities and external advisers. Entirely new working conditions were crafted and a strict Code of Conduct introduced. The OBR adopted a salary scale that reflected the professional work people were asked to do. Modern procedures for tax and customs work were employed. Everyone has been obliged to work in open-plan offices which have created the right atmosphere of transparency. These processes have been documented in detail by Africa Research Institute.

The first phase of donor assistance channelled through TMEA amounted to US$17 million. This included financing for the position of the first Commissioner General, new computer systems, capacity building, office renovations and adviser assistance. The latter came in the form of technical expertise in taxation, customs, human resources, auditing, information technology, procurement and communications. The technical assistance alone cost roughly US$10 million. However, expressed as a percentage of the additional revenue generated between 2010 and 2013, the adviser assistance comes to just 2.17%.

The OBR’s recurrent operating costs are financed primarily by the state, including staff salaries, rent, consumables and travel. This has never exceeded 3% of the revenue collected by the OBR. In 2013, due to budget cuts, this figure fell to 2.3% and it will fall again in 2014 unless promised additional funding materialises.

Sadly, the OBR faces the perfect storm in 2014. In addition to a severely curtailed domestic budget, the current international development assistance to the OBR will end in May. The contracts of all technical assistants expire by then and for procedural reasons these are not being renewed. Even if new advisers are successfully recruited there is likely to be a substantial break in support.

Successful revenue reforms elsewhere have taken up to 12 years – or more. In order for the OBR to grow sustainably, it needs the financial stability to make its own strategic decisions as defined in its 2013-2017 Corporate Plan. These objectives have been defined locally in conjunction with the Board of OBR and the Government of Burundi, and embraced by the international community.

Will Burundi’s brief period of revenue reform be the proverbial candle in the wind or will sufficient new donor funding emerge to take the OBR, and Burundi, to the next stage of development? I fear the worst. And am I to be proved right, the donor community would have wasted its best opportunity to reduce poverty in the long-term in Burundi.

Taxing Telecoms: charges levied on international calls not remitted to tax authority

The following article was published in Burundi’s IWACU magazine, March 2014.

It all started with a company, SG2. In theory, this company specialises in invoicing incoming international calls with the aim of calculating how much tax revenue should go to the government. However, operators in Burundi’s telecoms market explain that “this is not exactly the goal”.

Incoming international calls only represent a few percentage points of the total sales revenues of telecoms operators. One might therefore ask: why does this initiative between the Agence de régulation et de contrôle des telecommunications (ARCT) – the telecoms regulatory body in Burundi – and SG2 only target such a small fraction of the business of telecom operators? The explanation could go as follows: it’s because the sums are received in hard currency and the operators have all received an official instruction to raise the charge of incoming calls exponentially – from US$0.06 to US$0.34 per minute! So there is now “liquidity” in this segment, and the ARCT is demanding that operators transfer the surplus back to ARCT.

What is even stranger is that the operators were instructed to direct this surplus revenue to a special account at a local bank, when in fact such revenue should be sent to the account of the Burundi Revenue Authority (OBR). All of this is very troubling, not least for the OBR. According to several credible testimonies, the current Commissioner General, Kieran Holmes, has created enemies in Burundi. He has protested against recent concessions to newcomer Viettel, the Vietnam mobile operator owned by the military, as well as the scheme set up with SG2.

SMS is safer

As for phone tapping, several technicians of local companies have confided that:

“We were obliged to provide SG2 with some 200 free numbers and to authorise their technicians to access our networks. They connected their own systems. We are sure that they have the technology to carry out phone-tapping.”

Their advice?

“When you think that your phone might be tapped, use SMS instead. They are impossible to trace.”

Since the introduction of this system, international calls to Burundi have become very expensive, and Burundians in the diaspora now choose to use Skype or other calling systems (Viber, WhatsApp, etc). Soon people will do this for local calls as well, to avoid being tapped.

Source: Africa Research Institute

3 June 2015

Nigeria’s Upward Revision of GDP Should Sound Alarm on Tax-to-GDP Ratio

3 April 2014

The long-anticipated rebasing of Nigeria’s GDP series was finally made public on Sunday April 6, and the general media reaction has been cautiously celebratory. But the reaction has largely missed one big point: the rebasing establishes that the biggest economy in Africa has the lowest tax revenues of almost any country in the world.

Headlines have focused on the country’s GDP ‘nearly doubling’ (Financial Times), or Nigeria becoming ‘the biggest economy in Africa’ (AFP). There has been a great deal of enthusiasm about the implications for Nigeria’s attractiveness to foreign investment. A range of evidence is offered in support of this view.

The rebasing reveals a much bigger market size (the total economy worth $453 billion rather than $264 billion)., and mean per capita GDP in 2012 rising from $1,555 to $2,689 – although as Justin Sandefur points out, household survey data that we use to measure actual incomes haven’t changed).
It results in a much lower debt-to-GDP ratio (falling in 2012 from around 19% to 11%), highlighting the relative strength and sustainability of public finances.
It shows much greater economic diversity, with oil and gas just 14.4% of GDP (compared to a third), and agriculture also falling from a third of GDP, to 21.6%.

Much about the rebasing is good news

All of this is undoubtedly good news, to the extent that they it is news rather than statistics simply catching up with reality (the first three points made by Todd Moss on Ghana’s rebasing in 2010 all stand, I think). The note of caution in all reporting — typically in the final paragraphs — has stemmed from the necessary reference to reality, noting that nothing has changed in terms of people’s actual incomes, or costs of living. (This BBC story is an emblematic example: under the headline ‘Nigeria becomes Africa’s biggest economy’ and after a few paragraphs on the statistics, you find the sub-heading, taken from a quote: ‘Changes nothing’!)

In addition, reporting has welcomed the long overdue rebasing itself. This, the process of statistics catching up with reality, certainly is good news. Since the previous series was based on the structure of the economy in 1990, a jump to 2010 is a great improvement. Given the international recommendation of rebasing every four years, the new series is arguably somewhat dated already; so the commitment to rebase again in 2016 is also important. Transparency about the process of rebasing, and the material now published, is also very welcome.

But Nigeria’s tax revenues are worryingly low

While there is at the least some kind of feel-good factor from the new numbers — perhaps most of all for those who live outside the country — there is a striking feel-bad issue: tax.

Some quick background on the four Rs of tax. Tax doesn’t only provide revenues, although these are clearly important for providing basic public services, infrastructure, and the institutional capacity for an effective state among other things. But it’s not just the money that matters, it’s also where it comes from: tax delivers much that resource revenues and aid cannot. Tax is the way we re-price goods and services (e.g., making public bads like smoking or pollution more expensive); is a central element in redistribution to reduce inequality; and, perhaps most important of all, is the basis for public representation.

In Nigeria’s case, there are longstanding concerns over the reliance on oil and gas revenues, and on the low level of tax revenues in particular. A range of research now provides support for the hypothesis that greater reliance on non-tax revenues weakens state-citizen relations, undermining standards of governance and institutions, and exacerbating corruption. Here’s the picture, using data released in March from the country’s IMF consultation.

Not too bad, you might think? Yes, non–oil and gas revenues at 6–7% of GDP are a bit of concern; and the downward trend overall is a worry. But revenues of 20% of GDP don’t compare all that badly in the region, or at this income level.

What are the dangers of such low revenue?

The rough rule of thumb used by the IMF and others, which Cotarelli’s (2011) IMF paper (oddly no longer available?) traces back to 1963 and the great Cambridge economist Nicholas Kaldor, is that a tax-to-GDP level below 15% is a danger sign. Below such a level of overall revenues, a state will struggle to function; and I would add, below such a level of tax revenues in particular, there is a serious threat to effective political representation and good governance, and so both to the ability of government to challenge poverty and inequality, and the likelihood of it happening.

On this basis, Nigeria’s rebasing reveals two serious issues. First, that despite massive resource wealth Nigeria has been failing in most recent years to reach even the 15% minimum in total revenues. And second, that the non–oil and gas share of revenues has been almost unbelievably low.

For 2012, the most recent year for which we have certain data, the total of non–oil and gas revenue stands at just 3.87% of GDP. From the OECD DAC data we know Nigeria received $1.916 billion in aid; or 0.42% of the now stated 2012 GDP of $451.69 billion. That leaves tax revenue of a maximum of 3.45% of GDP.

Looking at (admittedly far from perfect) World Bank data on tax, we find only four other countries in the last ten years which ever had such a low tax revenue: the oil states of Bahrain, Kuwait, and Oman (which together total less than 5% of Nigeria’s population); and, in 2004 only, Myanmar.

For one of the most populous countries in the world to be in this company should be of grave concern. It is no coincidence that Nigeria is also one of the only countries where more than one in ten children die before their fifth birthday. It also has, according to UNICEF, has bucked the trend of MDG progress to show a substantial deterioration from 2007–2011.

Nigeria’s GDP rebasing is worthy of celebration because it reveals more of the true picture. But the picture is certainly not one to celebrate. Instead, it reveals the depth of state weakness. Can that be enough to drive change?

A final thought: while there are clearly major political issues to address, policymakers could do worse than start with some basics in respect of transparency and the behaviour of the tax authority itself, as this figure compiled from Afrobarometer data shows.

Source: cgdev

3 June 2015

Global economic crime spreads: Latvia has highest VAT shortfall

3 April 2014

RIGA – Economic crimes against enterprises and other legal persons continue to grow in the world. According to the PwC 2014 annual report on global economic crime, approximately 37% of respondents admit to being victims of economic crime (up 3% on 2011)

In addition to the aforementioned figure, 25% admit to have been victims of cyber attacks, because fraudsters now often use high-tech solutions to acquire what they need.

The PwC survey, which is the most large-scale one in the world, concluded that theft remains the most popular form of economic crime in the world, as mentioned by 69% of respondents. This is followed by public procurement fraud (29%), bribery and corruption (27%), cyber crimes (24%) and accounting fraud (22%). Other types of crime include human resource fraud, money laundering, theft of intellectual property or information, mortgage fraud and tax fraud.

“Economic crime has become a truly borderless threat. The reality of fraud is that it can impact a company’s revenues as directly as other business and market forces,” – said Steven Skalak, partner in PwC’s Forensic Services practice and lead editor of the global survey.

Skalak adds that economic fraudsters continue to function. They adapt to such ever-changing global market conditions as implementation of new technologies and expansion of newly-developed countries.
He adds that the situation is only made worse by the financial impact economic crimes have on a wide range of enterprises. Economic crimes ruin internal processes, reduce employees’ honesty and reputation of companies they work for.

Where does economic crime take place?

Economic crime is a wide-spread and global problem. In a regional perspective, economic crime is present most notably in Africa, where 50% of respondents admit to have been victims (59% in 2011). It is followed by North America (41%), Eastern Europe (39%), South America and Western Europe (35% each), Asia and countries of the Pacific (32%) and the Middle East (21%).

Respondents from 65 countries and territories admit that they have had experience with economic crimes at one point or another. Respondents from South Africa note the highest level at 69% (60% in 2011). Crime rates continue to grow rapidly in Ukraine where it is measured at 63% compared to 36% three years ago, Russia stands at 60% (37% in 2011) and Australia, 57% (47% in 2011). The survey also mentions eight newly-developed countries (Brazil, Russia, India, China, South African Republic, Turkey, Mexico and Indonesia), where 40% of respondents admit they have experienced economic crime by way of outflow of riches.

Which sectors suffer the most?

Economic crimes have the highest impact on the financial sector, retail trade, the consumer goods sector and communications sector. Nearly 50% of respondents in each sector admit to have being victims of economic crimes at some point. Financial services organizations sometimes become victims of large-scale cyber crime and money laundering. Retailers and communication companies often suffer the most as a result of theft.

How to uncover fraud?

The survey concludes that 55% of all economic crimes are uncovered thanks to internal organization measures. These include reports about suspicious deals, internal auditing or fraud monitoring management. It is mentioned in the survey that respondents predict a further increase in the number of economic crimes in nearly all the categories in the near future. Managers of different enterprises are mostly concerned over corruption and bribery.

A commentary about the situation in Latvia

PwC Taxes and Legal Consultancy Department manager in Latvia Ilze Rauza describes the situation in Latvia in the following way:

‘Even though there has been no in-depth analysis of the situation in Latvia, the 2013 report about the shortfall of VAT in 27 EU member states reveals that Latvia is among those countries that have arguably the highest VAT shortfall of GDP. This indicates high rates of tax fraud in the country.’

Rauza adds that tax crimes in Latvia have only increased due to problems including household financial difficulties, benefits of economic crimes, and personal justification of committing such crimes. Without doubt, tax fraud and other types of economic crime create a serious distortion of competition in the country. Latvian courts are unable to handle the numbers of different tax disputes. However, there have been positive developments in VAT cases, which may contribute to the reduction of VAT fraud cases in the long-term.

Source: Baltic Times

3 June 2015

Tanzania: TRA Compiles List of Firms Required to Use EFDs

10 April 2014

A list of business entities required to use electronic fiscal devices (EFD) has been put on the noticeboards of all regional and district Tanzania Revenue Authority (TRA) offices and on its website. This has been implemented in response to a directive given by the Prime Minister, Mr Mizengo Pinda, after a meeting held in February, this year.

Addressing a press briefing in Dar es Salaam, TRA Acting Director of Taxpayer Services and Education, Mr Julius Mjenga, said the meeting was also attended by the Ministry of Finance, Ministry of Industry and Trade and the Prime Minister’s Office (Regional Administration and Local Governments).

TRA was told to compile a list of businesses which were required to use EFDs, publish it in the media and provide their contact office details so stakeholders with queries could be served, Mr Mjenga said.

“The list has already been compiled and distributed to all regional and district commissioners countrywide,” he said. “TRA would like to inform the general public that the legal use of EFD is still in force,” Mr Mjenga stressed.

He warned that anyone who attempted to frustrate the exercise was committing an offence and would be prosecuted.

Source: Tanzania Daily News (Dar es Salaam)

3 June 2015

Uganda: URA to tax government at source

13 April 2014

In the recent past, teachers and nurses have laid down tools demanding higher pay. Each time this happened, the Government was quick to point to lack of resources. However, it turns out that government departments have a lot to do with the lack of funds.

In September 2013, when James Tweheyo, the general secretary of the Uganda National Teachers Union, led a nationwide teacher strike for a 20% pay rise, government ministries, departments and agencies were unlawfully holding sh131b in unpaid taxes. This represents 77% of all unpaid taxes and close to 1.3% of the total amount of taxes that the Uganda Revenue Authority (URA) is meant to collect for the national coffers.

The Auditor General’s report for the financial year 2012/13 notes that the amount of unpaid taxes by government departments was sh31b at the end of June 2013. The eventual sh131b in September was a result of 13 government ministries not remitting Value Added Taxes, Pay-As-You-Earn and Withholding tax. At the time, the National ID project alone, under the internal affairs ministries, was holding sh40b in unpaid taxes.

The Government has approximately 88 ministries, departments and agencies. While most only receive money from fees for services and from budget allocations, some such as the Uganda Electricity Transmission Company Limited and local government engage in business.

Waiswa Abudu Sallam, the URA debt collection manager, says tax collection projections include the private sector and government.

“When government agencies fail to remit taxes, it affects service delivery. It also makes it hard to hit our targets,” he says.

The URA has a tax collection target of sh10.5 trillion. To date, the annual tax collections are off target by about sh270b, partly due to non-remission of taxes from government departments. He explained that government institutions are meant to collect 6% withholding tax on service contractors that are paid more than sh1m. Additionally, government workers are charged a PAYE tax.

A third tax, VAT, is collected by government departments whenever they charge for services. But Sallam notes that not all government departments have been diligent in remitting the taxes after they are collected.

Source: in2eastafrica

3 June 2015

India calls for data sharing on taxation

12 April 2014

India today called for data sharing on taxation and blamed the industrialised and developed nations for their reluctance on parting with this information.

“Although it (taxation) is not on the agenda in this meeting, the issue of data sharing is becoming very critical for the developing countries,” said India’s Economic Secretary Arvind Mayaram.

He was speaking during his intervention on investment at the G20 Finance Ministers and Central Bank Governors meeting being held during the annual spring meeting of the International Monetary Fund and the World Bank.

“The continuing reluctance of some of the industrialised countries for parting with information under administrative assistance requests is contrary to the spirit of the move towards automatic tax information exchange,” Mayaram said.

India would like this to be considered in the next meeting so that jurisdictions are urged to do so in accordance with their treaty obligations, he added. Mayaram said the International Industrial Working Group should look beyond the conventional solutions like Public Private Partnerships and infrastructure investment funds.

“India has ventured into new and innovative financing structures and avenues of raising capital like Infrastructure Debt Funds and Investment Business Trusts for pooled investment, which are mainly aimed at attracting investments from Pension funds and other cash-rich wealth funds,” he said.

He noted that this aspect may be discussed, including the strategy of Pension/Sovereign Funds and the experiences of other members of G20, both as investors and investees. Mayaram said uncertainty in the credit markets is impacting the ability of infrastructure developers to raise finance for infrastructure projects and undermining confidence in private finance models.

“These ongoing liquidity issues are likely to increase financing costs associated with certain delivery models. Therefore, it is imperative that MDBs are channelled towards funding in emerging economies,” he said.

Source: Business Standard

2 June 2015

‘Super tax’ on remittances to Africa hurts development -thinktank

16 April 2014

London (Thomson Reuters Foundation) – Africans face the highest remittance fees globally, regularly paying a “super tax” to send money home at a cost that hurts families and holds back development in the world’s poorest continent, a leading thinktank said on Wednesday.

The London-based Overseas Development Institute (ODI) said that reducing remittance charges to global average levels would generate $1.8 billion, enough to put 14 million children through primary school, or provide clean water to 21 million people.

The average cost to transfer $200 to sub-Saharan Africa was about 12 percent, compared with a global average of 7.8 percent, ODI said in its report, “Lost in intermediation”, branding the higher fees a “super tax”.

“This remittance super tax is diverting resources that families need to invest in education, health and a better future,” said the report’s co-author, Kevin Watkins. “It is undercutting a vital lifeline to hundreds of thousands of poor families in Africa. Africans living in the UK make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and internet transfers,” Watkins said in a statement.

Weak competition, “exclusivity agreements” between money transfer operators, agents and banks, and flawed financial regulation contributed to pushing charges higher, ODI said.

The institute said two money transfer operators – Western Union and MoneyGram – accounted for two thirds of remittance transfers to Africa.

“We conservatively estimate that the two companies account for $586 million of the loss associated with the remittance ‘super tax’, part of it through opaque foreign currency charges,” ODI said in the report.

Western Union said the average global revenue it earned from transferring money was 5-6 percent of the amount sent.

“However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies,” it said in a statement.

There was no fee for money transferred online from Britain for a cash payout in Africa when done through the sender’s bank account, it said.

Officials from MoneyGram were not immediately available for comment.

Rising Remittances

Remittances to Africa are rising.

In 2013, transfers to the continent were valued at $32 billion or around 2 percent of gross domestic product. In 2016, they are projected to rise to more than $41 billion, ODI said.

“With aid set to stagnate, remittances are set to emerge as an increasingly important source of external finance,” it said.

The ODI said there was no evidence of a fall in fees for Africa’s diaspora, even though governments from the G8 and G20 have pledged to reduce charges to 5 percent.

One of the many countries that are dependent on remittances is Somalia. Last year a threat by Barclays Bank to stop money transfer services to some 80 Somali remittance companies sparked an outcry with Somali-born Olympic gold medallist Mo Farah adding his voice to a campaign to keep the lifeline open.

For some, it is even more expensive to transfer money within Africa. For example, migrant workers from Mozambique pay charges as high as 20 percent to send savings back home from South Africa, the report said.

ODI called for several measures to lower Africa’s remittance “super tax” including an investigation of global money transfer operators by European Union and U.S. anti-trust bodies.

It also called for greater transparency over foreign exchange conversion rates and regulatory reform in Africa that would revoke “exclusivity agreements” between money transfer operators and banks and agents.

The use of micro-finance institutions and post offices as remittance pay-out agencies should also be promoted, ODI said.

Source: Thomson Reuters Foundation