The South African Treasury’s proposed withdrawal of the tax credits granted to domestic based companies that are taxed by African jurisdictions on the fees they charge for their services would undermine SA as a location for headquarters and could see MTN relocating its shared service centre elsewhere, MTN group executive for tax Carel Gericke warned on Wednesday. The proposed removal of the tax credits with effect from January 1 will affect all companies active in the telecommunications, banking, retailing and other sectors in African markets that they service from centres in SA. This has partly been because of the lack of skills in these markets.

In many cases, the proposal would result in these companies paying much more tax. They could decide to move their management service centres to lower tax jurisdictions. Gericke told members of Parliament’s standing committee on finance on Wednesday that MTN had decided to locate its centralised service centre in SA precisely because of the existence of the tax credit. Its withdrawal would mean that the centre would operate at a loss. Multinationals might not want to locate their headquarters in SA – which the government wants them to do – if the credit was withdrawn, he said. In a submission on the draft Taxation Laws Amendment Bill, Gericke said SA should aim to grow its currently small 2 percent share of the R38bn services market in sub-Saharan Africa.

The bill and the Tax Administration Laws Amendment Bill were the subject of public hearings by the committee. The tax credit was introduced into the Income Tax Act in 2012 to provide relief for the double taxation of South African-sourced income in other African countries that were not complying with the terms of their double taxation treaties and imposed a withholding tax. The Treasury’s rationale for removal of the tax credit is that it violates international tax rules and tax treaty principles, is a compliance burden for the South African Revenue Service (SARS), has been abused and that it was recommended by the Davis Tax Committee. Marc Lewis, speaking on behalf of the CFO Forum which represents the chief financial officers of companies listed on the JSE, as well as large state-owned companies, also argued for the retention of the tax credit system.

African countries are struggling to balance budgets amid a global commodity slump. However, some have cautioned against a rush to raise taxes at a time of cyclical slowdown that often has the opposite impact. Oscar Onyema Chief Executive Officer of the Nigerian Stock Exchange (NSE) says Nigeria should offer companies tax breaks to attract new listings. Listed companies tend to pay around 65 percent more of their earnings in taxes as they’re held to higher standards of disclosure, he said.

A bill in parliament that would compel companies to list should be “changed dramatically so you give incentives” instead, Onyema said. MTN’s Nigerian subsidiary MTN Nigeria is the country’s largest mobile operator with 59.89 million subscribers in December 2014 and accounted for 11 percent of Nigeria’s non oil tax revenue and 5 percent of total taxes paid in 2014, according to data from the firms FY 2014 results presentation. The total payment made by MTN Nigeria to government from inception in August 2001 is N1.3 trillion.

•Sourced from BusinessDAY.

Update news