Rwanda: Govt to Tackle Traders Challenges

13 January 2014

Government pledged to continue facilitating private investors and eliminating existing barriers to trade, in a bid to propel the economy towards its targets in the second Economic Development and Poverty Reduction Strategy (EPRS2). This was agreed by several government officials who included among others, the Minister for Finance, Claver Gatete, and the Commissioner General of Rwanda Revenue Authority (RRA), Ben Kagarama, during an interactive conference with close to 50 traders in and around the country in Kigali. During the discussions on Friday, organised by the Ministry of Finance, and the Private Sector Federation, traders faulted government for failing to provide sufficient electricity necessary to run daily businesses.

“Insufficient electricity hampers the production capacity of several businesses. We have targets as well, but if the challenge of electricity is not addressed, we may not be able to achieve them,” James Nsengiyumva, a trader, said at the meeting.

In reaction, minister Gatete said although the country produces insufficient electricity, the government has a strategy to triple it through several production projects and importation.

“We need electricity now and yet its production takes time. The government decided to look into importation while it waits for its own production projects. The cost of electricity in Rwanda is over 20 cents per kilowatt hour and yet in some countries, for example Ethiopia, has only four cents per kilowatt hour. We can import power in the short run while we focus on producing in the long run,” Gatete said.

“The highway of electricity importation is, however, not yet compatible, meaning that even if there is cheaper electricity in Uganda and Kenya, there is no way of transporting it to here. The government, therefore, decided to prioritise the transmission links from Uganda, Kenya and other countries, in order to import electricity cheaply and faster,” he added.

The business fraternity also urged government to reduce the costs of new innovations like the electronic billing machines, meant to ease payment of taxes. The machines are supposed to be purchased by all taxpayers and cost up to $650 dollars, according to RRA.

“We embrace new innovations because they simplify work, but we are not comfortable with the price of the electronic billing machines. We know they help us to easily calculate VAT, but why must they be so expensive?” John Bosco Mugabe, a businessman in Kigali, asked.

The Commissioner General of RRA, Ben Kagarama, reiterated that the cost of the machines is high because the technology used to develop them was expensive. He, however, promised that the cost will drop once the machine providers have recovered their costs.

“The machine is unique and beneficial to both the taxpayer and to RRA. I have talked to the manufacturers and they said the price could drop by half in the near future. RRA will continue to be the interface between the traders and the suppliers but we should appreciate that they invested heavily in the new technology,” Kagarama said.

Government seeks to work closely with the private sector as it gears to achieve targets in the five year EPRDS2 agenda, which seeks to among others, create 200,000 jobs annually, as well as to raise GDP per capita from $644 to $1,200.
 
 
Source: allAfrica

Egypt To Introduce 10 To 12% VAT

13 January 2014

VENTURES AFRICA – Egypt is set to introduce Value Added Tax (VAT) this year after it announced that a bill which places VAT at 10 -12 percent will be finalized by the end of January. The tax will be imposed on all goods; with the exclusion of a few subsidized foods including wheat and oil, and would replace the presently working Sales Tax, a report on Al-Ahram Arabic revealed.

“The tax rate will be higher on other goods including alcoholic beverages, cigarettes and cars. The VAT should replace the sales tax currently imposed on 17 goods and services,” head of the Income Tax Authority, Mamdouh Omar said at a conference during the weekend.

VAT is a form of consumption tax imposed on finished goods or service for the value added during the production stage (manufacturing to distribution). It is similar to personal income tax or corporate income tax in the sense that it is designed mostly to generate revenue for the government. Cairo is keen on switching from Sales Tax to a more ‘efficient’ tax scheme, and believes the VAT will offer an effective medium of increasing its budget revenues.

 
According to Ahram Online, The North African country is expecting an additional $46 billion from tax revenues, bolstered by an increased sales tax inflow from LE83 billion ($11.9 billion) to LE126.5 billion ($18.2 billion) if VAT is fully implemented. Although some analysts tag the tax scheme as ‘regressive’, explaining that it places greater burden on the poor, compared to an income tax which taxes individuals based on income levels.

“The VAT increase puts pressure on the poor. It is a regressive tax and leads to a redistribution of the wealth in the wrong direction,” said Mahmoud El-Khafif, a spokesman of the United Nations Conference on Trade and Development (UNCTAD).

Source: ventures-africa

Honduras Raises Its VAT Rate

17 January 2014

Honduras has raised its headline VAT rate from 12 percent to 15 percent, with effect from January 1, 2014. This came through Decree No 278/2013, which included many other tax measures in order to increase tax revenue. About 1,000 people have reportedly taken to the streets in order to protest against the recent tax rises.
 
Regarding VAT itself, this painful move hasn’t come without problems. Not only has the VAT rate been hiked, but also a number of VAT exemptions have been removed by the reform. In addition, the VAT rate for alcoholic beverages is now 18 percent.
 
VAT exemptions previously concerned about 300 types of items. As of now, only 72 of these products are still not subject to VAT, restricting exemption to the most basic items, such as, among others: milk; fruits; vegetables; fish; chicken; coffee; white cheese; eggs; sugar; flour; bread; corn; and rice. One piece of good news for consumers though: this is better than the smaller list of 35 items initially planned by the Government.
 
Although this list shows the Government has tried to spare the poorest, Hondurans’ already low purchasing power is likely to be badly affected. In fact, the tax reform introduces stiff tax rises for other previously exempt essential items, such as energy.
 
From a practical point of view, Honduran retailers will have to systematically review the receipts they issue. This is because these receipts are pre-printed and they are based on the previous 12 percent VAT rate. Thus, retailers must manually apply the 15 percent rate on their receipts, and they will have to do so until they exhaust their existing stocks of receipts. Thus even from an administrative point of view, the VAT increase is proving painful.
 
 
Source: Tax-News, Washington

India: New tax proposals should justify costs of collection, says expert

21 January 2014

New tax proposals must be framed in such a manner that cost of collection justifies the amount being sought to be raised.
 
Else, such new proposals need to be scrapped, says G. Raveendran, former additional director-general of Central Statistical Organisation. He said this while presenting a paper on ‘Official statistics system in India’ at a workshop organised here by Kerala Statistical Institute. He cited an example from Punjab wherein the State Government proposed a luxury tax on the tourism trade. The government stood to gain nothing after accounting for costs involved.

“I found that the actual realisation was not going to exceed Rs. 10.1 crore in a year,” Raveendran said. 

It doesn’t exactly help when the cost just about equals the amount being raised. Not surprisingly, the government earned the wrath of the industry. The government was advised to scrap the proposal. At least this would give the industry some relief, went the logic. 

Investment decision

Any good governance system has to be supported by good statistics. Growth can sustain only with good investment decisions. This needs reliable statistical information.
 
Accurate estimation of revenues accruing by way of taxes is important from the viewpoint of assessing resources at the government’s command. Investment decisions can go awry if information on available resources is wrong. “In this manner, we can see that good governance is all about good statistics,” he pointed out. M. Madhusoodanan, Deputy Director-General, National Sample Survey Organisation, Kerala, said that a good statistical system is a prerequisite for decision-making. It has also a bearing on formulation of public policies and effective monitoring of development programmes.

Legwork stays

C.P. John, Member, Kerala Planning Board, is of the view that no modern technology can replace the legwork required needed collecting basic data. India has had a robust statistical system right until the 60s ad 70s but has since failed to reflect the complexities associated with a diversified and expanded economy. Data being delivered conceal more than it reveal, John said, quoting recent instances. He suggested quarterly issue of basic data so that planning can do away with guesstimates.

Among those who addressed the workshop are: A.N. Rajeev, Deputy Director, Directorate of Census Operations, Kerala; V. Ramachandran, Director, Economics and Statics, Kerala; P. Kochunarayana Pillai, Executive Director, Kerala Statistical Institute; P. Rajasekharan, Chief, Agriculture Division, Kerala Planning Board; and J. Navaz, Assistant Advisor, Reserve Bank of India, Kerala Region
 
 

Source: the hindu business line

Establishing a VAT Monitoring System for China

21 January 2014

China has rapidly implemented value-added tax reform over the last two years, and it has pledged to complete the reform by finally extending it even to the financial services and real estate industries by 2015.
 
While value-added tax systems have grown in popularity worldwide over the last thirty years as a new source of dependable tax revenue (reportedly even US presidents Barak Obama and Richard Nixon briefly considered it), the Chinese value-added tax (VAT) system is unique and far more intricate and resource-consuming than normal. It is heavily dependent upon printed VAT invoices that can only be issued and used by resort to elaborate verification processes designed to ensure tax collection and to curtail fraud.
 
Failure to effectively manage the system can result in substantial tax liabilities that may wholly consume already thin profit margins.Therefore, it is critical for every foreign invested enterprise in China (i) to plan for the impact of VAT from the very beginning, (ii) to establish an independent internal (or outsourced) system to monitor and manage the company’s VAT position, and (iii) for senior enterprise leaders to stay abreast of the company’s VAT position and to consider it when transacting business.
 
The Chinese VAT system has numerous hazards to ensnare an unwary foreign investor, and examples of several are briefly presented here. On a very foundational level, the most important initial step to effectively managing the Chinese VAT system is for a foreign invested enterprise to attain “general taxpayer status.” Value-added tax is intended to be imposed on nearly every business transaction not specifically exempted or otherwise excluded, and the tax ranges from 3% to 17%.

However, it is possible to reduce this substantial burden through a simple process whereby “input VAT” is used to offset “output VAT.” For instance, if a trading company or manufacturing company purchases goods (and shoulders the burden of a 17% VAT), it can qualify to use such paid-out VAT (“input VAT”) as a type of credit to offset its VAT liability when it sells goods. Obtaining the qualification to use “input VAT” to offset “output VAT” is the key, and those companies obtaining this status are called “general taxpayers” or “general VAT taxpayers.” This status can be more freely obtained upon the establishment of a new foreign invested enterprise, provided the new company effectively manages the application process; otherwise, the opportunity to obtain such status is thereafter delayed until the enterprise’s annual sales turnover reaches a certain threshold.
 
As one might imagine, failure to obtain such status as early as possible could adversely impact a company’s cost structure and profits.
 
Besides the foundational step of obtaining “general taxpayer” status, foreign investors should consider another important factor to realizing tax savings from the Chinese VAT system, which is to effectively manage the process of obtaining and utilizing “input VAT” invoices. As mentioned, “input VAT” invoices are needed to offset “output VAT,” and these invoices are physical paper invoices printed with a special printer by specially trained and qualified employees of companies that have achieved “general taxpayer” status.
 
If a company’s business partner has not obtained such “general taxpayer” status, then such physical paper “input VAT” invoices will only be available by making special application to the Chinese tax bureau and, if not obtained, the company would bear a heavier burden of VAT; therefore, it is important to screen vendors or business partners to determine their taxpayer status or ability to obtain these invoices.
 
If and when such paper “input VAT” invoices can actually be obtained from vendors or partners, they must then first be officially verified by Chinese tax authorities through a formal process that is usually performed electronically over the Internet but that may sometimes require an in-person petition at the Chinese tax bureau. But the intricacies of the Chinese VAT system do not cease here; Timing is also an extremely important factor in effectively utilizing “input VAT.”
 
Input VAT invoice must be verified within 180 days of issuance. The purpose of the verification is to ensure that the VAT invoice is genuine. Upon verification, the company needs to fill in the input VAT amount in the VAT return form when conducting VAT filing. The VAT filing should take place within the stipulated VAT filing period, which is usually the first 15 days of the following month.
 
As an example, if the VAT invoice is verified in January, it must be included in the VAT filing for January, which should be completed before February 15. If the company does not have output VAT from which to offset input VAT, the input VAT being will be retained in the tax system of tax bureau and carried forward to the next period for offsetting. As a foreign investor may readily see, effective management of the VAT system so as to reduce tax exposure requires focused attention and dedicated resources. Characteristics of an effective VAT monitoring and management system for China would likely include at least the following:

• Identify VAT compliance and efficient management as an enterprise priority
• Place responsibility and accountability with a senior level manager
• Outsource and/or hire sufficient dedicated and qualified specialists
• Establish processes for monitoring and reporting the VAT position to enterprise leaders
• Create a VAT position report that is included in management financial reports
• Monitor the effectiveness of obtaining and utilizing “input VAT” and aging balances
• Monitor VAT balances and fluctuations or variances and identify risks
• Establish standards and protocols that limit the risk of adverse exposure to VAT
• Create a risk and crisis resolution procedure to ensure problems are timely addressed
• Schedule and conduct VAT audits on a regular basis
• Stay abreast of a rapidly changing regulatory environment, including, for example, the availability of VAT refunds and exemptions, and adapt processes and policies accordingly

 
Because of the complexity of the Chinese value-added tax system and rapid rate of regulatory reform, foreign investors should anticipate a sharp learning curve and on-going need for professional support. Even a well-resourced and capable internal VAT management team may need to confer with industry experts to understand the latest changes and local interpretation or to draw upon additional manpower.
 
 
Source: China Briefing