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New Reforms in Nigeria to Attract Foreign Investment

21 November 2017 Comments (0) Africa, Politics

Oluyemi Osinbajo Nigeria

Foreign investment dropped in Nigeria with the fall of oil prices three years ago, but they have started to return thanks to reforms made recently by the Nigerian government. Earlier this year, Nigerian Vice President Oluyemi Osinbajo, acting for President Muhammadu Buhari during his medical leave, signed several executive orders aimed at improving business processes under the acting authority of the Presidential Enabling Business Environment Council (PEBEC). As part of a government bid to bring back foreign investment, changes to port procedures, business registration, and certificates for importing capital, have been declared.

Port Procedures

According to the Oxford Business Group, a key factor of the reforms was a move to tighten operations at Nigeria’s ports by reducing the number of agencies needed to clear cargo, creating single checkpoints for goods in transit, and banning non-official workers from the area. In the past 14 agencies were required to clear cargo at the port, but this has been reduced to seven. Now these seven agencies must act as a single task force, at a central location, and payments must be made through the Corporate Affairs Commission website (CAC). Only on-duty personnel will now be allowed in secure areas at ports and airports. The government hopes these reforms will quicken processes at entry points, and curb bribery and corruption.

Business Registration

Another way in which the reforms hope to dissuade corruption in the country is by making processes more transparent. Business registration will now be automated through the CAC website, via an online payment transfer, and all state agencies are required to publish a list of fees and conditions for business registration and license applications online. These agencies must also publish a set time-line for applicants, and if a response is not given in time, the application will be approved by default. In the past, new applications had to be made by visiting the country. These changes to the system mean investors can now register their business without having to come to Nigeria, saving both time and money.  

Electronic Certificates

According to Reuters, the central bank of Nigeria recently announced plans to issue electronic certificates for capital imported into the country, which will also save investors a lot of hassle. The electronic certificate will replace the hard copy issued previously, which investors or companies were required to get in just 24 hours, according to a 1995 law. The certificate is a declaration that the company has invested foreign currency in Nigeria and is necessary for the company to repatriate returns on those investments. Investors have complained in the past, that they have struggled to meet the one-day deadline.   

World Bank Doing Business Ranking

With a population of 180 million, Nigeria is still an attractive place for investment, however implementation and operating costs are high, and security within the county remains an issue. The country ranked 169th out of 190, in the 2017 World Bank ‘Doing Business’ survey, an improvement of one place from 2016, but a drop of 50 places in the last eight years. For starting a business, the country ranked 138th, for getting a construction permit, 174th, and for registering property, 182nd. The World Bank listed eight areas for improvement: starting a business, construction permits, getting electricity, getting credit, registering property, trading across borders, paying taxes, and the entry and exit of people across borders.  

Approval for Reforms

The International Monetary Fund (IMF) which said much more needed to be done to raise Africa’s biggest economy out of recession in March, has praised the new reforms. According to the Oxford Business Group, the IMF lauded Nigeria’s commitment to improving business transactions and investment inflows, and noted that the central bank’s foreign exchange trading window was a boon for investors. Investors needing to settle trade-related requirements in US dollars could now do so by phone, and at rates set by the buyers and sellers themselves, rather than by the bank or the market. The IMF said the moves would curb the market premium and push foreign reserve levels above the $30 billion mark. As dollars have been in short supply in Nigeria since the oil price drop, the country has had to look at new ways to attract foreign investment.

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Tanzania extends its e-tax system to cut fraud

21 August 2016 Comments (0) Africa, Featured, Politics

John Magufuli

Tanzania’s president, John Magufuli, has extended the e-tax system to all government bodies as he bids to slash fraud.

Tanzania’s president, John Magufuli, has been in office for less than a year, but he is already making a name for himself as a staunch opponent of fraud and corruption. Magufuli has attacked tax evasion and corruption, in a bid to ensure that the government no longer loses billions of dollars in unpaid funds. One of the most significant measures taken in this battle with tax evasion has been the announcement that the nation’s e-tax system will now apply to all government departments and bodies.

The e-tax system

It was 6 years ago that Tanzania first introduced its e-tax system, but it has taken until now for the system to be applied to government positions and departments.

The e-tax system involved the distribution of Electronic Fiscal Devices (EFDs) by the Tanzania Revenue Authority (TRA) to Tanzanian businesses. The EFD is an advanced version of a traditional cash register that records all transactions, and provides the TRA with an easily processed record of the tax owed.

Prior to this point, businesses recorded sales in hand written books, which not only allowed much easier deceit, but ensured that the TRA’s job was far more difficult. Director of Education and Taxpayer Services Richard Kayombo said that businesses would claim to have sold less, and that the old system was practically “worthless” in terms of stopping tax fraud.

In contrast, EFDs are compatible with the TRA’s own Electronic Fiscal Device Management (EFDM), which provides the government with real-time sales information. Kayombo said, “The system enables us to get information directly from a trader when they make business transactions.”

An Electronic Fiscal Device (EFD)

An Electronic Fiscal Device (EFD)

While the system was initially rolled out to large scale traders in 2010, a second drive in 2013 saw it become compulsory for mid-sized traders too. However, it has taken President Magufuli until now to extend this measure to governmental departments and bodies too.

Magufuli not only feels that it will be a huge financial boon for government coffers, but that it is also a matter of principle. Magufuli explained, “We forced entrepreneurs to capitalize on the electronics tax collection while we, in government, have not resorted to the same thing, which is a total contradiction.”

The increased reach of Tanzania’s e-tax system ensures that the government cannot be accused of hypocrisy in regards to its stance on corruption, and it also means that taxation revenue is expected to exceed the government’s original target for the financial year. The commissioner general of the TRA, Alphayo Kidata, predicted that takings would surpass “the collection target of 15.5 trillion Tanzanian shillings during the 2016/2017 fiscal year.”

This is a figure akin to more than $7 billion.

Looking to reap the rewards

In the first 2 months of Magufuli’s crackdown on taxes last year, the TRA collected around $700 million in taxes. However, while some of this was achieved by targeting corrupt officials and business owners, the true impact of the president’s policy will not be seen until the end of the financial year.

The rollout of e-taxes to all government bodies was announced only last month, after Magufuli met with the Rwandan president, Paul Kagame, who has successfully implemented a similar system in his nation. Rwanda has offered to send IT experts to assist Mr. Magufuli’s government in the implementation of the technology, and the announcement was greeted with widespread approval by Tanzanian commentators and experts. If the move is as successful as hoped, Magufuli’s government will be in a strong position to build the economy and social infrastructure.

In 2014, tax collections covered 75% of government expenditure, but universal e-taxation could make a dramatic difference to this. Mr Kayombo confirmed that in the first year of commercial businesses using EFDs, tax revenue rose by 23%, and by 27% in the second year. A similar success within government institutions would provide Tanzania with a huge influx of revenue.

Professor George Shumbusho, Senior Lecturer at Mzumbe University, felt that it was an excellent move from the government, and one that could have a massive impact, exclaiming, “This is a commendable decision given the fact that the country has been losing a lot of money to unscrupulous public officials…With this system, the government may be able to fund its budgets by 100 per cent.”

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Cash-starved Burundi reports stronger inflow from domestic taxes

8 August 2016 Comments (0) Africa, Latest Updates from Reuters, Politics

KIGALI (Reuters) – Tax revenues in Burundi rose by almost 13 percent last month compared with a year ago, official data showed on Monday, a boost for the economy following a year of unrest linked to the re-election of President Pierre Nkurunziza.

More than 450 people have been killed in violence and more than a quarter of a million people have fled to neighbouring countries since Nkurunziza was re-elected for a third term in the small east African country in what the opposition said was a violation of the constitution.

A strong inflow from domestic taxes as well as modest revenue from coffee and tea exports have become vital for the aid-dependent country, particularly since Belgium and the European Union, key donors, cut external aid over the past year.

Tax collection rose to 50.2 billion francs ($30.32 million), up from 44.7 billion francs collected in July 2015 and well up on the target of 47.1 billion francs, the semi-autonomous revenue authority (OBR) said in a report.

Political unrest held back tax collection last year. Recovery of tax arrears had helped tax collection this year and the fight against tax evasion had been more effective, officials said.

Cumulative tax receipts from January to July jumped to 355.9 billion francs versus 333.03 billion francs the same period last year.

“The OBR reiterates its commitment to continue its mission of maximizing tax collection to support the country’s economy,” it said.

In the 2016 budget, the government foresaw grants falling by almost 50 percent compared to 2015.

($1 = 1,655.9000 Burundi francs)

 

(Reporting by Patrick Nduwimana; Editing by George Obulutsa and Richard Balmforth)

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Tinkering with South African fiscal policy won’t boost growth

5 July 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s economy is not growing fast enough to create jobs, but tax cuts or increases in public spending are unlikely to stimulate growth, a senior Treasury official said on Tuesday.

South Africa’s unemployment currently hovers close to 27 percent of the labour force, while data on Monday showed employment in the formal sector fell by 0.2 percent to 9.273 million people in the first quarter of the year.

The Treasury estimates that Africa’s most industrialised country could grow by 0.9 percent this year compared with 1.3 percent in 2015, while the central bank and the International Monetary Fund have forecast 2016 growth at 0.6 percent.

“It is unlikely that growth … will come from tinkering or manipulation of macroeconomic policy variables …, in other words reducing taxes or increasing expenditure,” Director General Lungisa Fuzile told a business conference organised by the Gordon Institute of Business Science.

Finance Minister Pravin Gordhan in February unveiled a package of spending cuts, civil service job freezes and moderate tax hikes, partly to avoid credit rating downgrades.

Fuzile said reforms were underway at more than 300 publicly-owned companies which the Treasury has pledged to wean off state bailouts, though he did not elaborate.

Many of these firms are a drain on the state budget and have been flagged by all three major ratings agencies as a risk to South Africa’s investment grade status.

 

ELECTIONS LOOM

Fuzile said he was concerned about the quality of governance among those firms, adding that the Treasury was close to finalising proposals for merging two state-owned airlines, South African Airways (SAA) and SA Express.

However, political analysts say the reform of state firms could suffer amid preparations for local government polls in August and factional contests in the ruling African National Congress which have led to violence and deaths across the country.

“Under such circumstances, you are not going to have a sober debate in cabinet about what to do to fix (the state firms). The calculus is not sound governance,” analyst Prince Mashele told Reuters on the sidelines of the business conference.

South Africa’s private sector contracted in June after expanding for the first time in a year in May as output fell and companies cut jobs, a survey showed on Tuesday, while another report pointed to waning consumer confidence.

 

(By Mfuneko Toyana. Editing by James Macharia and Gareth Jones)

 

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Ivorian government to reduce export taxes for cocoa products

1 July 2016 Comments (0) Africa, Business, Latest Updates from Reuters

ABIDJAN (Reuters) – The Ivorian government has announced reduced export taxes for cocoa products in a bid to encourage production and processing in the West African country.

Taxes on exports of cocoa butter will fall to 11 percent from 14.6 percent and taxes on cocoa mass will drop to 13.2 percent from 14.6 percent, the government said.

The export tax on cocoa powder will fall to 9.6 percent from 14.6 percent.

Also, trading houses such as Cocoa Barry, Olam and Cargill will be able to increase their processing capacity by 7.5 percent. Smaller processors will be able to expand by 10-15 percent.

The changes are pending formal contracts to be signed between processors and the government.

 

 

 

 

(Reporting by Ange Aboa; writing by Edward McAllister; editing by Jason Neely)

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Tunisia struggles to attract foreign investment

23 June 2016 Comments (0) Business, Featured, Middle East

tunisia oil

Tunisia reports slowed growth as international companies show concern about the difficulty of extracting oil and phosphates as well as high taxes.

Growth of foreign investment in Tunisia has slowed amid concerns about a lack of government incentives and the difficulty of extracting the North African nation’s oil and phosphates.

Direct foreign investment in Tunisian industry amounted to $81 million in the first four months of 2016, an increase of less than 5% over the same period in 2015. A year earlier, direct foreign investment had doubled as the country adopted its first constitution and formed a government in the aftermath of Arab Spring.     

Tunisia lacks appeal to investors for a number of reasons, according to experts.

“Insecurity, high taxation and the difficulty of extraction of potential reserves are the main obstacles that prevent Tunisia from being attractive to foreign investors,” said Radhi Meddeb, chief executive officer of the engineering company Comete.

Tax policy cited

Only 15% of oil company executives believe Tunisian tax policy encourages investment, according to Global Petroleum Survey 2015.

Under the nation’s tax policy, the state gets 80%of the revenue on the sale of oil while the operating companies receive only 20%, even though they bear all of the costs with no help from the government.

Tunisia also has more limited reserves than other sources of oil and phosphates. The Global Petroleum survey estimated the country’s oil reserves amount to the equivalent of about 850 million barrels, compared to nearly 24 billion in Texas. Reserves of phosphates amount to 100 million tons, 20 times less than in Algeria.

While relatively stable compared to other nations that were part of Arab Spring, Tunisia is not immune to political and economic upheaval. For example, Gafsa Phosphate posted nearly $10 million in losses in 2014 amid recurring strikes by transport workers.

Production drops sharply

While 50 foreign companies were operating in the extraction industry in 2010, when the Arab Spring began, fewer than half that many operate in Tunisia today.

Nationally, phosphate production has dropped by nearly 60%, from 8.5 million tons in 2010 to 3.5 million tons. Oil production has fallen by half, from about 90,000 barrels a day in 2009 to 45,000 this year, according to Trading Economics.

On the plus side, Tunisia has announced it will join the Initiative for Transparency in the Extractive Industries, a global standard that promotes accountability and fights corruption in the use of revenues from extracted resources.

Tunisia first applied to join the initiative in 2012, but political instability prevented its membership, according to Kais Mejri, head of governance at the Ministry of Industry.

Tunisia believes that the initiative will make the nation more attractive to foreign investors compared to rivals who are not part of the initiative. “We hope to return next year to the same (foreign investment) rates as before 2011,” said Ridha Bouzaouada, Tunisia’s Director General for Industry.

Part of larger, regional struggle

Tunisia is not alone in its economic challenges.

More than five years of turmoil across the region has created a negative economic outlook, according to Hamdi Tabbaa, president of the Arab Businessmen Association.

Tabbaa estimated regional economies have lost about $1.2 billion in the past five years as Syria, Iraq, Yemen, Libya, Egypt, Lebanon and Tunisia saw an average decrease of 35% in their gross domestic product.

Direct foreign investment in the region was also dropping. It declined from $48 billion in 2014 to $44 billion last year, well under half of the record high of $96 billion in 2008, according to the Arab Investment and Export Credit Guarantee Corporation.

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The World Bank names Mauritius as Africa’s top business destination

28 May 2016 Comments (0) Africa, Business, Featured

business mauritius

An annual report from the World Bank has picked out Mauritius as the best place to conduct business in Africa, so just how has the island nation achieved this?

Mauritius has been named as Africa’s most business friendly country by the annual “Doing Business” report from the World Bank. The report seeks to help potential investors (and governments) identify how easy it is to create startups and investment opportunities across the globe. While Africa as a continent does not fare particularly well, Mauritius came in at number 32 on the global list, which made it the comfortable winner in Africa.

The top 5 African nations showed a diverse geographic spread, with Rwanda, Botswana, South Africa and Tunisia following, in that order, on the heels of Mauritius. A quick glance at Africa’s worst performing nations would provide no surprises, as Eritrea propped up a bottom 5 of the DRC, Central African Republic, South Sudan and Libya.

Any nation struggling with armed conflicts and political unrest is not going to provide the ideal base for creating new business opportunities, so while the bottom of the table comes as no surprise, what is it about Mauritius that has seen it take the top position?

Stability, simplicity and low taxes

Mauritius is first and foremost a fairly safe country. Not only does it not suffer from the unrest of many African nations, but it has low crime rates, and a small population which is governed by what the Economist Intelligence Unit called Africa’s only “full democracy” back in 2011. While this may no longer be fair to other nations, it is clear that Mauritius is a society with low levels of corruption and good personal safety.

Prime Minister's Office in Mauritius

Prime Minister’s Office in Mauritius

In addition to this, the Mauritian government has gone out of its way to reduce the amount of red tape involved in starting up a business. This ongoing strive to create a business-conducive atmosphere is highlighted by the 2014/15 changes to building permit rules, in which the process was streamlined to allow new ventures to start running as quickly as possible.

It now only takes 14 days to register a property, and 3-6 days to start up a new business. To help ensure the wheels on each sector of the economy run smoothly, the government has also invested heavily in education. The net result of this focus is that Mauritius has the highest rate of literacy in Africa, at 86%.

South Africa’s high commissioner to Mauritius, Nomvuyo Nokwe, told South African media that not only had Mauritius made it simple to register new businesses but that its development of education was also key. Nokwe stated, “It has highly skilled professional people…it’s made doing business easy, because you have [educated] people to work for you.”

Perhaps one of the most significant aspects to Mauritius’ burgeoning business growth, and yet one with some controversy, is its low taxation. The Africa 2016 Wealth Report referred to the huge growth in millionaires in Mauritius, but this included many from other nations who had moved there. The report found that “Mauritius was the top performing African country for millionaires during this period, with growth of 160 per cent…company and personal income tax rates are only 15 per cent, with no inheritance or capital gains tax.”The controversy around this is that some feel the nation is just a tax haven for the wealthy, and moreover that much of the money coming into the country is simply passing through. There are concerns around the rich, from nations like Kenya, using Mauritius for tax purposes, as its income tax rate is an attractive 15%.

Does the economy match the reputation?

Dipolelo Moime, chief executive of business risk consultancy Legato Services, believes it is more innovation that has attracted outsiders, saying, “Mauritius is continually reinventing and reforming itself massively to ensure the country is as business-friendly as possible, in order to attract multi-national corporations.”

Despite this, the issues around money just passing through cannot be ignored. There is an entire business strategy known as “The Mauritius Route”, which describes how investors in India use the island nation as a conduit to connect them to Indian markets. In fact, 39.6% of foreign direct investment to India, between 2001 and 2011, made its way via Mauritius.

However, this money does not pass through Mauritius in a vacuum, and the banking and legal processes it utilizes are legitimate businesses which create revenue streams for the host nation.

As things stand, Mauritius is not one of Africa’s largest economies, but the World Bank report did not base its findings on GDP, it based them on how easy it was to set up a new business in a nation, how well developed infrastructure was, and how attractive a destination was for new investment. In these measures, Mauritius must warrant its ranking.

As of 2016, Mauritius can boast the highest per capita GDP in Africa, with a 2016/17 predicted GDP growth of 5.7%. In addition, the nation’s stock exchange is widely regarded as one of the best in Africa and is worth over $7 billion. These figures are for a nation of only 1.2 million inhabitants.

Most significantly, the government is not resting on its laurels. The Mauritian government has drawn up a blueprint to diversify the economy, and invest in new industries, while continuing to develop existing ones. “Green growth” is at the forefront of plans to maximize the nation’s coastlines, with a goal of 8-9% economic growth per annum, which will ultimately lead to Mauritius being a high income status nation by 2025. The plans have worked thus far, so investors from far and near will be watching with interest.

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Kenya, Senegal join effort to fight tax evasion

28 February 2016 Comments (0) Africa, Business, Featured

Kenya signs the Convention on Mutual Administrative Assistance in Tax Matters

Twelve African countries sign multilateral agreement to counter tax abuse, which costs the continent an estimated $50 billion annually.

Kenya and Senegal have joined 10 other African countries in signing an international agreement designed to reduce tax evasion.

The multilateral convention enables cooperation among nations, including exchange of information about tax evaders and assistance in collecting taxes from them.

African nations lose an estimated $50 billion per year to illegal financial transfers, including tax avoidance, according to a 2015 report by the African Union and UN Economic Commission for Africa. In comparison, Africa received about $29 billion in foreign aid in 2013.

The tax evasion problem is particularly acute for poorer countries that do not have tools to fight sophisticated schemes by large multinational companies. The report and aid groups have noted that these billions of dollars might otherwise be used to develop services and infrastructure on the continent.

Multinational companies blamed

“Africa is hemorrhaging billions of dollars because multinational companies are cheating African governments out of vital revenues by not paying their fair share in taxes. If this tax revenue were invested in education and health care, societies and economies would further flourish,” said Winnie Byanyima, executive director of Oxfam International.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is one tool to fight large-scale tax evasions. It was developed by the Council of Europe and the Organization for Economic Cooperation and Development in 1988 and updated in 2010.

Parties to the agreement cooperate by providing financial information to other party countries on request, performing tax examinations and assisting with recovery of tax dollars.

Twelve African nations sign agreement

Kenya and Senegal signed the agreement in February. Other African parties to the convention are Morocco, Gabon, Cameroon, Mauritius, Uganda, Ghana, Nigeria, South Africa, Tunisia and Seychelles. Globally, a total of 94 countries have signed the convention.

Kenya also recently passed a law that prevents companies from using a common tax-avoidance practice called “transfer pricing” or “trade mispricing.”

Using this practice, companies allocate their costs to subsidiaries in high-tax jurisdictions in order to pay most of their taxes at the lower rate while moving their profits to jurisdictions where they pay little or no tax.

For example, the African Union study described a South African case in which a multinational corporation claimed that a large part of its business was located in the United Kingdom and Switzerland, with relatively low tax rates.

On investigation, South African officials found the European branches had only a few staff while the company conducted most of its business in South Africa. The scheme had enabled the company to avoid $2 billion in taxes, which the South African government reclaimed.

Invoices misstate value

Other practices are “under-invoicing” or declaring a low value on exports to minimize profits on paper and “over-invoicing” by declaring a high cost on imports.

For example, Mozambique records showed an export of 260,385 cubic meters of timber was exported to China in 2012 while records in China show 450,000 cubic meters were imported from Mozambique that year, according to the report.

Another study, by Global Financial Integrity (GFI), found high rates of over and under-invoicing in Kenya, Ghana, Mozambique, Tanzania and Uganda in the decade leading up to 2011.

Kenya, Tanzania see high losses

GFI said Kenya had an estimated $10 billion and Uganda $813 million in under-invoicing. At the same time, Tanzania had $10 billion to over-invoicing. Ghana had more than $14 million for the decade in misstated invoices and Mozambique more than $5 million.

The African Union report said illicit financial outflows from Africa have more than doubled since 2001, from $20 billion to the current $50 billion. The report said African nations lost about $850 billion to illegal transfers between 1970 and 2008, including $218 billion from Nigeria, $105 billion from Egypt and $82 billion from South Africa.

The report said mispricing occurs in a number of sectors, including mineral production in the Democratic Republic of the Congo and South Africa, crude oil exports from Nigeria, and timber sales from Mozambique and Liberia.

Corporations, organized crime cited

Thabo Mbeki, the former president of South Africa who chaired that panel that produced the report said large corporations were the main tax abusers aided by corrupt officials and weak governance.

“The information available to us has convinced our panel that large commercial corporations are the biggest culprits of illicit outflows, followed by organized crime,” Mbeki said.

African and non-African governments as well as oil, mining, banking, legal and accounting firms were involved in tax avoidance schemes, according to the study.

It found that 38 percent of the outflows from the continent originated in West African and 28 percent in North Africa. Southern, Central and East Africa each accounted for about 10 percent.

While significant to the continent, Africa’s losses are a small share of the illicit outflows globally, about six percent of an estimated $1 trillion between 2007 and 2009.

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Tehran takes tough line with VAT tax

18 December 2015 Comments (0) Featured, Middle East, Politics

iran tax

Implementation of 2008 VAT  tax at a time of economic stagnancy is causing confusion and anger in Iran’s merchant class.

Across Iran there is a growing anger at VAT bills received by merchants, many of them covering the years since the tax was first implemented in 2008, and some of the bills reaching $100,000 or more.

As Iran faces economic stagnancy, businesses claim that these VAT bills could in many cases render their businesses unsustainable. Falling oil prices have greatly affected the Iranian economy over the last few years. And with the groundbreaking deal with the West on slowing development of nuclear weapon capability meaning that many sanctions will be lifted in mid-2016, many consumers have vastly reduced their spending in the hope that the deal will bring both lower prices and a greater range of available goods.

Relaxed Taxation

Historically Iran has had a laid back approach to taxation; authorities were often willing to negotiate and bargain, there was a high level of smuggled – and thus tax free – goods available on the market, and dual accounting was and is still common practice to avoid some taxes. But with the global oil market seeing reduced prices over the last decade, the Iranian government brought in a 3% VAT level in 2008 on all but everyday goods such as bread and some other food products.

But since President Hassan Rouhani took office in 2013, tax collection has been stepped up, a move that is now worrying business owners across Iran. With oil prices forecast to continue falling in the year ahead, the lifting of sanctions still several months away, and with a deficit that could reach 550 trillion Iranian rials next year (18.3 billion USD), the government is keen to maximize tax collection. Given that the vice-president of the Iran Chamber of Commerce, Pedram Soltani, estimates that 40% of all government income in the year ending March 2016 will come from taxation – with VAT constituting half that figure – it is understandable why the authorities in Tehran are keen to pursue this.

Power of the Merchants

But President Rouhani has to tread carefully on this issue. Despite there being a ban on free trade unions, the merchant class – or bazaaris to give them their traditional name in Iran – remains a powerful force with a past history of confronting the government on this same issue. They played a key part in the revolution of 1979, combining with the clergy to oppose the Shah’s oppressive policy and implementing strikes which crippled the economy. And, when they see it as necessary, they have again wielded that power to oppose policies by the new regime. A 2008 strike in response to the original implementation of VAT saw clashes with security forces as many businesses closed. This led to a temporary suspension of the tax and an announcement of annual rises with an agreement on figures of 6 to 15%.

iran tax 2Then in 2010 the government stated that VAT on many goods would rise by 70%. Once again the bazaaris went on strike and once again the government backed down, agreeing to reduce the VAT rise to 15% instead of 70%. The government also offered a concession that businesses who could show they operated at a loss in previous years could apply for an exemption from increases.

An interesting factor of both these strikes was that it was not confined to merchants who were affected by the higher rates but was instead supported by traders across a wide range of goods, illustrating that the bazaaris had strong solidarity across their “membership.”

A rock and a hard place

How this current dispute plays out will be interesting to observe and hard to predict. On one hand, there is a determined government led by Rouhani who is trying to steer the country through uncertain economic waters. Even with the lifting of sanctions due in mid-2016, it will take some time for that to have any positive effects. On the other hand there is a united and powerful merchant class who are adamant that many businesses cannot survive these new increases or backdated bills. Given the outcomes of the two previous strikes and the resulting government climb-downs, it may well be the case that Rouhani has to consider some form of compromise, as strike action of any length would further damage the economy and could also lead to more instances of public disorder.

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Zimbabwe proposes 10% black empowerment tax

5 October 2015 Comments (0) Africa, Latest Updates from Reuters, Politics

HARARE (Reuters) – Zimbabwe plans to impose a 10 percent tax on foreign-owned firms to fund a black economic empowerment programme that is designed to bring the companies under local majority control, a minister was quoted as saying on Monday.

Some of the companies that could be affected by the new tax include the world’s top two platinum producers Anglo American Platinum and Impala Platinum Holdings, which both have operations in the southern African nation.

Under Zimbabwe’s Indigenisation and Economic Empowerment Act passed in 2008, the minister of youth and empowerment can, with the approval of the finance minister, levy a tax on any company to raise money to fund the black economic empowerment programme.

Youth and Empowerment Minister Patrick Zhuwao told the government’s Herald newspaper that he would propose a 10 percent levy on all foreign-owned firms that have not complied with the law, known locally as indigenisation.

The money raised would fund mostly rural community trusts to invest in businesses, said Zhuwao, adding that the government expected to raise $93 million annually.

“For us to be able to fund empowerment programmes in the long term, we are proposing the introduction of an empowerment levy and we are empowered by law to propose the levy,” Zhuwawo was quoted as saying by the newspaper.

Zhuwao, a nephew to President Robert Mugabe who was appointed to his job on Sept. 11, could not be reached to comment further.

Efforts to introduce the levy in 2012 failed after then finance minister Tendai Biti, from the opposition Movement for Democratic Change party, refused to sanction its implementation.

Zhuwawo’s comments come more than a month after the previous empowerment minister said the government was relaxing the law in a bid to attract foreign investment.

Zimbabwe’s economy is expected to grow by 1.5 percent this year, half the government’s initial forecast, after weak global commodity prices hit exports and a drought halved the staple maize crop harvest.

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