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Global Tax Overview 2020

Globalization has eradicated the barriers initially encountered by business that interacted between different jurisdictions. This has been fueled by the ever growing technology that is adopted across all the business sectors.Tax remains a core function that multi-national corporations have to consider while executing their business activities across the globe.

However, 2020 is marked by many countries carrying out comprehensive tax reforms in a bid to support the residents amidst the drastic Covid 19 pandemic. Taxes, rescheduling of government spending, with focus on the medical and food sector. Many countries have eased their fiscal stance in a bid to sustain the economy by lowering taxes, rescheduling of government spending, with focus on the medical and food sector.

Most countries in Africa rely heavily on tax revenue from a small number of multinational corporations. A small number of large taxpayers account for over 50% of the total revenue of Zambia, Swaziland, Nigeria, Mozambique, Liberia and Burundi. A lot of effort have also been made to broaden tax base and to continue the fight against corporate tax avoidance. However, in order to contain the spread of the covid-19 pandemic, many countries had to put in place new regulations that included travel bans and a series of curfews in different places. This has hurt many business entities that heavily rely on the market that is already shut down by the governments. As much as the countries are following the necessary protocols to open up their economy, many business corporations have already switched their model of operations by adopting the use of technology as a set precedence and efficiency.

Governments have put in measures to help businesses recover in this hard times. This has been seen through a series of donations and stipends offered to the individuals and businesses across the region.

Corporate tax reduction in countries.

Country Corporate Tax Country Corporate Tax
United Kingdom From 19% to 17% Columbia From 33% to 32%
Australia From 27.5% to 26% Zimbabwe From 25% to 24.5%
Belgium From 29% to 25% Kenya From 30% to 25%
Greece From 28% to 24%

Country

Sales Tax

Country

Sales Tax

United Kingdom

From 20% to 5%

Belgium

From 21% to 6%

Kenya

From 16% to 14%

Greece

From 24% to 6.5%

Italy

From 22% to 4%

  

Some of the VAT changes

Other Trends

Countries like Mauritius have had to revisit some of the pending double tax treaties. Recently, they signed the DTA with Kenya. This awaits Kenya to sign and agree on the same. Other countries that are revaluating their DTA’s include India.

There has been an increased consideration by many countries formulating new regulations to govern the taxation of the digital economy. Recently, Kenya joined the group.

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General Tax Principles.

Efficiency

Compliance costs to business and administration costs for governments should be minimized as far as possible.

Flexibility

Tax policies are microeconomic tool that help to ensure economic stability.
These policies should not be static but should change to respond to potential difficulties in the economy
These changes should be felt quickly in the economy
The below diagram highlights how a tax policy should respond to economic challenges.

Neutrality

  • This principle states that, a tax policy should generally refrain from interfering with the market’s allocation of economic resources.
  • Taxation should entail a minimum of interference with individual decisions.
  • It should not discriminate in favor of, or against, particular consumption expenditures, means of production, forms of organization, or industries.
  • Individuals must face same prices for economy to reach Pareto-optimal outcome
  • The goal then is to design a tax that introduces the least distortion and keeps society as close to the Pareto-optimal outcome as possible

Effectiveness and fairness

  • Taxation should produce the right amount of tax at the right time, while avoiding both double taxation and unintentional non-taxation.
  • The potential for evasion and avoidance should be minimized.
  • Discussions should be considered if there is a class of taxpayers that are technically subject to a tax, but never pay the tax due to due to lack of enforcement
  • The practical enforceability of tax rules is an important consideration for policy makers.
  • This helps to ensure collectability and efficiency of the tax system.

Equity

  • This principle determines what people should sacrifice based on two approaches.
  • Horizontal Equity: Two people deemed equal in every relevant economic dimension should pay same tax.
  • Vertical Equity: It is permissible to tax unequals unequally i.e. people with different levels of income should taxed differently

Ease of Collection and Ease of Compliance

  • To successfully implement a tax policy, it is necessary to incur the costs associated with administering and enforcing it.
  • Given that society must incur these costs, it wants to get the most possible revenue at the least possible cost.
  • This principle requires that individuals be able to calculate tax bills fairly easily and that it be difficult for individuals to hide information on taxable assets.

Certainty and simplicity

  • Tax rules should be clear and simple to understand, so that taxpayers know where they stand.
  • A simple tax system makes it easier for individuals and businesses to understand their obligations and entitlements.
  • As a result, businesses are more likely to make optimal decisions and respond to intended policy choices.
  • Complexity also favors aggressive tax planning, which may trigger deadweight losses for the economy

Essential Compliance Considerations

Collection of taxes remains a challenge in many countries across the globe. This is why various jurisdictions keep improvising regulations with an aim of enhancing revenue collection. As a result, this is a challenge as well for companies to comply with the tax laws and regulations that are always changing. There are a couple of considerations that companies can resonate to in order to get right the equation of compliance

Compliance Considerations

These considerations include;

  • Keeping of records; In almost every jurisdiction, the revenue authority embodies the real time and the historical data in order to enhance their revenue collection techniques.
  • It is advisable that as a taxpayer, you must retain and store your documents for tax purposes and reference. This will heavily assist in complying with the regulations and submitting evidence for your tax remittances.
  • Paying of tax; Every company is advised to declare and remit taxes on accrual basis and before deadlines. This will help reduce the chances of non-compliance.
  • Tax Planning During a tax dispute, companies should consider paying the outstanding principle tax that has not been included in the agenda for decision making by the law makers and the revenue authority.

Companies can take advantage of the opportunities available for tax planning purposes. Such include;

  • Establishment of a holding entity in a tax haven state; This would involve restructuring of the business functions in a tax efficient manner.
  • Use of tax incentives already provided by the Income Tax Acts of each country.
  • Restructuring the tax remittance by taking advantage of the Instalment Taxes; This salvages the cash flow of a company.
  • Use of capital allowances as guided by the Income Tax Acts.
  • In order to mitigate on VAT, companies are advised to utilize the input VAT from purchases incurred in business

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Ronalds LLP is a modern professional services firm based in Nairobi, offering expert advice in audit, assurance, tax, consulting, and advisory. With over a decade of experience, it operates across East Africa and has representation in over 30 African countries.

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