Taxation in Africa: PwC Survey respondents say South Africa is complex, Nigeria and Democratic Republic of Congo show high levels of corruption

South Africa (‘SA’) presents the greatest challenges in respect of taxation when it comes to doing business on the African continent. Countries that follow SA in terms of tax complexities and difficulties are Nigeria and the Democratic Republic of the Congo (‘DRC’).

In PricewaterhouseCoopers’ African Tax Survey 2007, respondents cited SA’s complex tax rules, especially those regarding controlled foreign companies (CFCs), transfer pricing and determining the place of effective management, as being problematic. SA’s exchange control legislation and the heavy administrative burden were also listed as particularly challenging.

Colette Hughes, a Senior Manager in the International Tax department of PwC’s Johannesburg office, says that respondents raised the high levels of corruption and lack of tax training/experience as concerns in Nigeria and the DRC. Nigerian tax authorities are viewed as being aggressive and unreasonable, and difficulties arise with the multi-level tax regime in Nigeria. Respondents described the DRC tax laws as unclear with prevailing practice frequently differing from legislation, where taxes are imposed for no apparent reason, and language barriers such as a lack of English-speaking tax officials make effective communication with the tax authorities difficult.

Hughes was presenting the survey results to PwC clients and staff at the firm’s Business Partners in Africa Conference held in Mauritius from 2-4 September 2007. The survey considered responses from companies in different industries, including PwC firms operating cross-border in the African region. These companies are exposed to several tax jurisdictions and are therefore able to make meaningful comparisons and comment.

Looking specifically at regulatory and business challenges, the Angolan tax regime is perceived to be the most challenging because of language barriers, cumbersome and complex bureaucracy and an unclear legal environment. The DRC once again ranks as a problematic tax regime due to political instability, unrest and corruption. Like Angola, the DRC’s legal environment is uncertain and processes relating to the tax system are inefficient. Overall, for most of the survey respondents, the areas of political risk and exchange controls pose the greatest business and regulatory challenges.

Looking at specific taxes, respondents rate compliance with the requirements for withholding taxes and expatriate taxes across Africa as particularly high risk. As multinationals establish offices across Africa, another growing risk is the taxation of share options; only 23% of survey participants feel they are fully compliant in this area.

Hughes says that companies need to ensure that their internal tax departments are adequately equipped to deal with these challenges. “Companies need to address the existing tax compliance and operational risks but are finding it difficult to recruit staff with the required experience and manage effective relationships with the fiscal authorities. Most companies indicated that they did not have fully documented tax strategies which had been effectively communicated to senior management.”

50% of survey response submissions came from companies based in SA. Survey responses were also received from companies based in the Ivory Coast, Mauritius, Senegal, Cameroon, the UK, Kenya, Tanzania, Zambia and Botswana.