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

African leaders must seize the initiative on global tax reforms

 

29 January 2014

As leaders gather together at the African Union summit, new analysis from the Institute of Development Studies (IDS) recommends that they must seize the initiative on tax reform and not wait for richer countries to implement proposed changes from last year’s G8 and G20 summits.
 
There remains a great deal of uncertainty around how initiatives on tax set out in the G8 Lough Erne Declaration and the G20 Leaders Declaration will be implemented and whether they will benefit the world’s poorest countries. IDS researcher Professor Mick Moore argues that there is plenty that leaders of poorer countries, and, organisations such as the African Development Bank and the African Union can do themselves to create more effective national tax systems and influence international processes.
 
Professor Moore said:

“The fact that tax is taking centre stage both in terms of the public and political debates is welcome. But moving from rhetoric to reality is where the real challenge lies. Poorer countries can and must seize the initiative on tax reform, and not wait for international processes to be finalised”

 
Professor Moore who leads the International Centre for Tax and Development highlights two key areas where poorer countries can take positive action. Firstly, on tax exemptions, which are particularly prevalent in poorer countries, but universally used and granted to companies to attract new investment. Doubts have been cast around how effective exemptions are in generating new investment and Professor Moore argues that organisations such as African Union, the African Development Bank and the African Tax Administrators Forum should take the lead on developing new international guidelines on their use and effectiveness.
 
Second, poorer countries can boost their own domestic tax revenues by boosting property tax collections and this could be encouraged through the creation of a regional based organisation such as an African Property Tax Initiative.
 
The proposed changes to the global tax system are directed almost exclusively at making more information about the potential tax base available to national tax authorities, more easily and at lower cost. While this is a step in the right direction, the benefits will not be shared equally. Richer countries, the BRICS, and a few other large emergent economies stand to gain the most because their tax authorities have the resources to use more information to reduce tax avoidance and evasion.
 
Professor Moore concludes:

“By taking the initiative and organising collectively at a regional level poorer countries can help create fairer national and international tax systems that suit their needs as well as the needs of the OECD countries and the BRICS.”

 
 
Source: in2eastafrica

South Africa: Government wants to levy VAT on foreign e-commerce firms

 

31 January 2014

The government is seeking public comment on how it can levy value added tax (VAT) on foreign companies that sell digital music, e-books and similar services in the local market but do not necessarily have a presence in South Africa. This is according to a notice issued by the Treasury on Thursday. Finance Minister Pravin Gordhan had also mentioned the issue in his 2013-14 budget speech. The Treasury said the call for public comment was being made against the backdrop of international and local efforts to bring cross-border e-commerce (specifically the digital economy) into the VAT regime.

“The current application of VAT on imports does not lend itself to the effective enforcement on imported services or e-commerce where no border posts (or parcel delivery agents, such as the Post Office) can perform the function as collecting agents, as is the case with physical goods,” it said. 

 

The Treasury also said that because such foreign companies were not VAT-registered, South African consumers bought imported digital products without paying VAT. That put local suppliers of digital services at a competitive disadvantage and resulted in a loss of revenue for the fiscus. It said the VAT legislation was amended to bring the digital economy more comprehensively into the tax net and provided for the minister to issue regulations prescribing imported services that would be covered by the new electronic services definition in the VAT Act.

These services would include the supply of e-books, digital music and films, software, images, games and games of chance, information system services, internet-based auction services, maintenance services and educational services, among others. The biggest digital retailers of music, books and films in South Africa are US-based Amazon and Apple’s iTunes service. However, while Amazon has some research and development and a call centre in South Africa, Apple has no physical presence as its computers are sold through a third party. Local e-commerce companies were unfazed by the news on Thursday. Takealot.com CEO Kim Reid said most local e-commerce firms did not compete in the digital services space, but rather in the delivery of physical goods.

“On all those physical goods VAT is paid already,” he said.

Project Isizwe CEO Alan Knott-Craig Jnr agreed, saying consumers would be little affected.

“The issue of taxing the digital services companies comes out of the US and the European Union, areas that do not have a uniform code for the various kinds of sales tax,” he said. “This creates an arbitrage advantage for Amazon and iTunes, but that doesn’t exist in South Africa as VAT is applied uniformly.”

 

Electronic regulatory affairs lawyer Dominic Cull said it would be interesting to see how the Treasury planned to force a company with no physical presence to pay VAT.

“According to current VAT regulations, one needs to have physical address and a local bank account with at least R50,000 worth of invoiced payments in it,” he said.

A Google South Africa spokesperson said:

“We are analysing the draft regulation and will ensure that our business continues to comply with South African law if any changes come into effect.”

Source: Business Day Live

South Africa: Electronic Services Regulations Published for Public Comment

 

31 January 2014

The public has until February 20 to make their input on the National Treasury’s Electronic Services Regulations
 
In a statement on Thursday, National Treasury said the regulations have now been published for public comment. The publication of the regulations follows on Finance Minister Pravin Gordhan’s announcement in the 2013 budget that all foreign businesses supplying e-books, music and other digital services in the country will be required to register as Value Added Tax (VAT) vendors.

“This announcement was made against the backdrop of efforts, both internationally and locally, to bring cross border e-commerce (specifically the digital economy) into the VAT regime. The current application of VAT on imports does not lend itself to the effective enforcement on imported services or e-commerce, where no border posts (or parcel delivery agents, e.g. the Post Office) can perform the function as collecting agents, as is the case with physical goods.”

 

The net result is that the local consumers can buy imported digital products without paying VAT. This outcome not only places local suppliers of digital services at a competitive disadvantage compared to suppliers from abroad but also results in a loss of revenue for the fiscus, noted Treasury.
 
The VAT legislation was amended to bring the digital economy more comprehensively into the VAT net and provides for the minister to issue Regulations prescribing imported services that will be covered by the new electronic services definition in the VAT Act.
  

 
Source: allAfrica

Tax. It’s a lottery.

 

12 February 2014

Could a sales receipt be a winning ‘lottery’ ticket? Portugal is the latest of a number of countries intending to use tax refunds, lotteries or fines to encourage consumers to report payments they’ve made to retailers.
 
In what has been dubbed a ‘luxury receipt’ sweepstake, Portugal intends to combat tax fraud by offering cars as lottery prizes to customers who demand receipts for their purchases. The idea being that, by customers submitting sales receipts with their individual personal tax/social security number to the tax authorities, this would dissuade businesses from under-declaring VAT on cash sales. While one would suspect that ‘bargain hunter’ consumers might negotiate a hefty discount for forgoing a receipt, thereby colluding in the ‘black market’, studies in other countries have shown quite the reverse.
 
Sao Paulo in Brazil introduced a similar scheme in 2007 whereby customers provide their social security numbers to cashiers, and the businesses must submit their copies of the receipts to the tax authorities. The tax authorities then report which social security numbers have been entered, with customers receiving a 30% rebate of VAT paid to the business, and entered into a lottery with a potential $500,000 pay out.
 
According to a study undertaken by Harvard economist Joana Naritomi, thirteen million people entered into the receipts database in 2011, with one million complaints from customers that their receipts hadn’t been recorded. The result? Over four years, reported revenues increased by 22%, with an increase in VAT payments of over $2 billion. While ‘rewards’ to customers accounted for $1.6 billion of those increased revenues, it still resulted in a very creditable’ $400 million net increase to the regional government.
 
According to the Institute for Economic Affairs, the UK’s black market accounts for about 10% of the economy, or more than £150bn a year, yet HMRC’s tax ‘campaigns’ over the last four years have only netted £802 million. Maybe we should run a lottery?
 
 
Source: BDaily Business News

Belgium To Phase In Tax Cash Register System In 2015

 

12 February 2014

The Belgian Finance Ministry has published the key dates for the phased implementation of the tax cash register system (SCE) in the hotel and catering industry (Horeca) in Belgium in 2015. The tax cash register system becomes mandatory for all hotel and catering establishments from January 1, 2015.
 
Employers opting to install the SCE system this year, on a voluntary basis, will benefit from a reduction in employers’ contributions for five full-time workers, as well as from a rise in the number of overtime hours qualifying for tax reductions, from 130 to 180 hours.
 
For all other establishments, Finance Minister Koen Geens intends to allow an “implementation period” of up to one year, during which time employers will not be sanctioned for not using the tax cash register system. This implementation or “administrative tolerance” period ends on January 1, 2016.
 
The one-year transitional period is designed not only to help employers in the Horeca industry adjust to the changes, but also to enable the new Belgian Government to evaluate the impact of the fiscal measures that have so far been introduced, aimed at supporting the sector, and to introduce additional initiatives if deemed necessary. The key dates for registering on the system are February 28, 2015, for those applying the SCE from January 1, 2015, June 30, 2015, September 30, 2015, and December 31, 2015.
 
 
Source: Tax News

Malaysia: Govt might rake in billions after MyEG completes Online Tax Reporting project

 

14 February 2014

 

PETALING JAYA: MyEG Services Bhd, one of the best-performing stocks last year, has finally landed the job to wire up businesses that are required to pay tax to the Government – a project that has been mooted to beef up the Government’s coffers. The over-riding objective of the project is to plug a loophole that currently allows businesses, particularly entertainment outlets, to evade paying tax on sales to the Royal Malaysian Customs Department (Customs). It is also to facilitate the Government’s implementation of the impending goods and services tax (GST) starting from April next year. The amount that the Government is losing out is not known, but the sum is estimated to run into the billions. 

In an announcement yesterday, the company stated that it had been awarded a RM180mil contract by the Customs to undertake the Customs Online Tax Reporting (Electronic Monitoring System – EMS) project. The tenure of the project is for a period of six years and will commence from April 1. According to the statement, the project will entail linking up point-of-sales terminals and cash registers of businesses that are subject to the Customs’ tax collection.

“This will enable the Customs to effectively monitor tax collection revenue for the Government,” it said.

 

The project to wire up businesses has been shrouded in controversy, as there were several contenders for the job due to its lucrative returns. Although the face value of the contract is small, it is seen as a prelude to the company generating more recurring income from the maintenance and supply of the equipment installed in the businesses. MyEG had mooted the project several years ago and stated in previous reports that it had invested more than RM100mil in developing the system. 

It finally made some headway in the project when it announced last month that it had completed a pilot Customs Service Tax monitoring system, cementing its position to win the job. The pilot project was undertaken by MyEG Integrated Networks Sdn Bhd, a company where it has a 40% stake. The announcement yesterday did not specify details on the company awarded the EMS project. The euphoria surrounding MyEG picked up pace after Barisan Nasional was retained as the Government in last May’s general election.
 
Since May last year, the stock rose some 178%, making it easily one of the best performers for the year on Bursa Malaysia. MyEG ended at RM2.89 yesterday, inching up nine sen. The company is of the opinion that the project will contribute positively to its earnings for the financial years ending June 30, 2015 onwards.
 
The source of funding for the project is expected to be obtained from internally generated funds and bank borrowings.
 
 
Source: The Star