Angola Plans to Simplify Tax Codes to Boost Non-Oil Revenue
Angola, Africa’s second-biggest oil producer, plans to simplify taxation and more than double revenue from sources other than petroleum to curb the government’s reliance on crude.
The target is to pass three tax codes this year that will cut fees and modernize laws, some which date from 1948, Gilberto Luther, director of the reform project, said in an interview on April 29 in Luanda, the capital. The changes will increase receipts from industries including manufacturing and retail to about 20 percent of gross domestic product by 2017 from 8 percent in 2011, he said. In Nigeria, Africa’s largest crude producer, non-oil tax was 6.3 percent of GDP in 2011.
“Companies and taxpayers in general can expect a simpler tax system, less costly, with less bureaucracy,” Luther said. “It will be a more business-friendly environment, fostering private initiative.”
Oil-industry tariffs accounted for 79 percent of tax revenue in 2011. Plans to earn more from other areas come as Angola rebuilds from a 27-year civil war that ended in 2002 and as growth excluding oil reached 9.1 percent last year. The $114 billion economy is forecast to expand 7.1 percent this year from 7.4 percent in 2012, according to the government and budget documents.
By 2017 or soon after, a value-added tax on finished products and services will replace a consumption tax that’s charged on each stage of manufacturing, Luther said. The new levy will cut the “cascading effect” of the previous tax, which increased inflation by making prices higher than a lone tariff on the final product, he said.
Angola has separate tax regimes for petroleum, negotiated with companies including Total SA (FP), Exxon Mobil Corp. (XOM) and BP Plc (BP/) in production-sharing agreements, and for mining in a code enacted in November that cut corporate levies to 25 percent from 35 percent. An Organization of Petroleum Exporting Countries member, Angola pumped 1.8 million barrels of crude a day in April, according to data compiled by Bloomberg.
Nigeria, Africa’s top crude producer, collected 20 percent of its taxes in 2011 from non-oil sources, compared with Angola’s 21 percent, according to government data from the countries. The International Monetary Fund forecasts Angola’s government revenue this year at 44 percent of GDP, the second-highest in sub-Saharan Africa after Lesotho’s 60 percent.
Non-oil economic growth will slow to about 6 percent a year until at least 2017 because the domestic market isn’t large enough to support diversification, Alves da Rocha, an economist at the Catholic University of Angola, wrote in a December report.
Angola passed a private-investment law to clarify which projects get tax breaks, said Luther, whose department has an $18 million budget and 300 people.
“Tax incentives have limited impact on overall economic growth, especially in emerging markets where other factors such as poor infrastructure and lack of skilled workers can be larger deterrents to investment than tax,” he said.
Widening the tax base can best be achieved by ensuring that state oil revenue, which was $3.1 billion in March according to the Finance Ministry, is used to develop non-oil industries through spending on machinery and other increases in productivity, according to a Feb. 21 presentation by Nicholas Staines, the IMF’s representative in Angola.
Tax authorities are guiding the reforms by looking at South Africa, Ivory Coast, Morocco, Zambia and Mozambique, countries where non-oil tax revenue as a percentage of GDP ranged from 14 percent to 28 percent in 2011, Luther said.
The country wants to get non-salaried workers in the so-called informal economy operating within the financial system and paying tax, Luther said. Only 20 percent of Angolans have bank accounts, according to the central bank, which has begun education programs to increase that number.
“It will be a challenge to convince the citizens of Angola about the value of paying taxes,” Odd-Helge Fjeldstad of the Bergen, Norway-based Christian Michelsen Institute, which conducts development-related research, said in a 2012 report. “This will require not only reforms, but a major cultural shift.”
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