Angola Growth Targets Delay Tax Reform: Michelsen Institute

Planned tax changes in Angola, Africa’s second-largest oil producer, are hindered by inaccurate budget targets and perceptions the measures will hurt the economy, the Christian Michelsen Institute said.

The southwest African country has yet to approve three new tax codes first submitted to the government in 2011. President Jose Eduardo dos Santos in October cut an estimate of last year’s economic expansion to 5.1 percent from 7.1 percent, while the 2012 budget projecting a 12.8 percent increase to the $114 billion economy was later lowered to 7.1 percent.

“Tax reform is being delayed because it’s perceived as adding both economic and administrative constraints to economic growth,” Odd-Helge Fjeldstad, senior researcher at the Bergen, Norway-based institute, said in an e-mailed response to questions yesterday. “Budget forecasting has disconnected from reality by overestimating revenue from non-oil industries.”

Angola pumped 1.69 million barrels of crude a day last month, second only to Nigeria on the continent. The country is seeking to diversify beyond petroleum that accounts for 80 percent of tax revenue and 40 percent of gross domestic product. Companies such as Total SA, Exxon Mobil Corp., Chevron Corp. and BP Plc operate deep-water wells in the member of the Organization of Petroleum Exporting Countries.

“Accurate revenue forecasts are a key element for the design and execution of sound fiscal policies,” Fjeldstad said. “The government seems to lack the political will, transparency and expertise to reform taxes and improve revenue projections.”

Integration Stalled

Separate legislation to modernize and simplify personal and corporate income taxes, and plans to integrate customs and tax collection into one agency have stalled, he said. Political pressure to diversify economic output has prompted overly optimistic growth targets, while lack of transparency shrouds tax reform and budgeting, Fjeldstad said.

“Changes in the taxation of petroleum products in 2012 accounted for lower revenue collection” that year while “the complexity and impact of tax changes have required longer discussion and approval,” Gilberto Luther, director of Projecto Executivo para a Reforma Tributaria, the Luanda-based tax reform agency known as PERT, said by e-mail. “The situation in Angola is not comparable to other countries given the high growth rate.”

Revenue Forecasts

A PERT advisory council of businesses meets regularly, the agency is open to the public through conferences and officials met with Fjeldstad last month to discuss tax issues, Luther said. The government last year improved its model for forecasting income including incorporating tax exemptions and strengthening the link between economic growth and revenue collection.

The government forecasts annual 10.3 percent non-oil growth in gross domestic product from 2015 to 2017 while the International Monetary Fund projects 7.2 percent. IMF forecasts are lower than the government’s because the lender sees potential difficulties in large capital projects and holds more caution about their spillover effects, Nicholas Staines, the IMF’s representative in Angola, said March 20.

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