Africa VAT union update

2019 promises to be a defining year for Africa as it is on the brink of becoming a single market. Last year, during the African Union (AU) summit on the African Continental Free Trade Area (AfCFTA) 44 African leaders signed an ambitious, continent-wide free-trade agreement. AfCFTA includes a Protocol on Free Movement of Persons, Right to Residence and Right to Establishment. Currently 19 of the required 22 of ratifications have come through with 15 instruments of ratification deposited.

Mr Tei Konzi, Commissioner in-charge of Trade and Free Movement at the Economic Community of West African States (ECOWAS), recently said it is expected that trade among African states will increase to 52 percent, valued at about US$ 35 billion by 2022, when the AfCFTA comes to reality.

What does AfCFTA mean for businesses? 

·       African businesses, traders and consumers will no longer pay tariffs on 90% of the goods and services provided in the schedules of concession, that they trade between African countries; 

·       Dispute resolution mechanisms for traders facing non-tariff barriers;

·       Co-operation between customs authorities over product standards, regulations and trade transit and facilitation will make it easier for goods to flow between Africa’s borders;

·       Service suppliers will have access to the markets of all African countries on terms no less favourable than domestic suppliers;

·       Mutual recognition of standards, licensing and certification of service suppliers will make it easier for businesses to satisfy the regulatory requirements in each other’s markets;

·       The establishment of regional value chains in which inputs are sourced from different African countries to add value before exporting externally;

·       States will have recourse to trade remedies to ensure that domestic industries can be safeguarded;

·       “Phase two” negotiations will provide for recognizing African intellectual property rights, facilitating intra-African investment, and addressing anti-competitive challenges.

Tax experts say that African countries should not worry about the loss of revenue that is expected due the abolishment of 90% of tariffs and import duties. Currently African countries do not make a lot of revenue on taxing imports since the trade volumes between African states are low. What they stand to lose they can make up with increasing domestic taxes such as VAT and CIT.  

Article provided by Equinox Group Ltd.