Value-added tax and its implications in Angola economy
By Arnaldo Vieira
Angola has pushed back the controversial introduction of a 14 per cent consumer tax on goods and services after its social partners demanded better preparation for it.
Angola signed an understanding with the International Monetary Fund (IMF) for introduction of the Value Added Tax in exchange for budget support last month.
Angola's recourse to consumer taxes is the latest signal that the good times are over for consumers in Africa's oil-supported economies as government's seek to diversify revenues in the face of low crude prices.
The gradual withdrawal of benefits under the welfare economy has already caused upheavals in Egypt and is the key grievance in the unfolding protests in Sudan where post-Omar al Bashir military leaders are resisting a return to civilian rule.
Last week, Angola passed a revised budget factoring in VAT proceeds from this month but after a meeting with the country's economic commission on Wednesday, the implementation was pushed to October 1.
President Joao Lourenco said two days later that Angola would rely on other revenue measures for now.
"We were humble enough to hear opinions of an important section of our society, private businesses. This gives us time to prepare better for VAT introduction," President Lourenco said on TPA, the state-owned broadcaster.
Angola's economy has experienced slow growth since oil prices, which account for 80 per cent of government revenue, nosedived together with other commodity prices from 2008.
Oil also accounts for half of the country's economy and 95 per cent of exports but its production fell to the lowest level last year.
Angolan businesses have cautiously welcomed the delay in introducing the tax which they think is one bad idea, at least until 2020
"It is a tax for organised economies not our own, we still need to formalise our economy then implement VAT,” said Carlos Cunha, a businessman
Jose Severino, the head of the Angolan Industrial Association (AIA), said the government should ensure VAT does not worsen living conditions.
The Treasury said the government faced tough options in seeing through its programmes should VAT not be introduced.
"Some programmes will not be carried out by the government. The solution will be to run deeper into debt or to cut on expenditure, ” the secretary for finance and Treasury Vera Daves said last week.
During its first phase 421 large taxpayers, mostly firms in the oil sector, milling and mobile phone operators will act as agents to collect the tax from 40,000 taxpayers.
That means petroleum products, mobile phone services and bread, the genesis of the upheavals in Egypt and Sudan, will become more expensive by 14 per cent.
The main opposition party UNITA said there were no adequate preparations, including training of personnel.
“Why are we rushing?” UNITA, Vice President Mr Raúl Danda said, a question also raised by Casa-Ce MP Manuel Fernandes.
Firms are yet to be informed of the accounting system that will be used and frequent power outages are also raising questions of consistency in computing for the tax.
“If the state is in a hurry to go to citizens’ pockets then it has to do things well for its success,” Mr Fernandes said.
During the ruling MPLA extraordinary congress President Loureço defended the tax saying it had been adopted by most market economies.
“The tax incidence will be only 14 per cent. VAT will be implemented gradually and in phases depending on a firm's capacity," he said in an event skipped by former President Eduardo dos Santos allies.
Introduction of VAT and moves towards a balance budget are two of the preconditions set by the IMF for Angola, which is increasingly aid dependent, to receive $248 million in budget and programme support.
It is meant to help Angola adopt a private sector led diversification from oil and minerals for economic growth and to cushion the currency, Kwanza, which is trading at 340 units to the dollar.
The General Tax Administration expects VAT collections to reach $733 million this year, meaning the loss for the three months will be $183 million.
From next year, businesses with a turnover of more than $250,000 will be eligible to pay the tax.
Angola is the last of the South African Development Community members to introduce VAT which is higher than 14 per cent in other countries.