Finance Act 2013 Policy Issues & Implementation
This document discusses key policy issues and implementation strategies outlined in the Finance Act of 2013 by the Ministry of Finance and Economic Development in Freetown, November 2013. It covers objectives such as revenue mobilization, tax enforcement, investment attraction, and tax administration ease. Furthermore, it delves into definitions, applications, permanent establishment concepts, thin capitalization regarding debt versus equity financing, as well as international taxation implications.
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Presentation Transcript
Finance Act 2013 Policy Issues and Implementation Ministry of Finance and Economic Development Freetown, November 2013
Agenda Objective Definitions and Applications New Issues in ITA 2000 Other Issues Extractive Industries Revenue (Imposition) Act Resource rent tax for mining and petroleum Petroleum fiscal regime Mineral revenue forecasts 2
Objectives Revenue Mobilization Improve domestic revenue collection (Payroll, PAYE, etc) Strengthen (and more robust) enforcement Attract investment Agricultural inputs included in investment incentives Requirements for administering investment incentives Ease Tax Administration Removal of administrative difficulties Regulation on incentives Tax clearance certificate for foreign workers 3
Permanent Establishment Term used when businesses operate in more than one country For tax purposes few problems for businesses with small outreaches or acts through a partner already established in another country But tax laws and treaties are important when businesses expand and set up operations in another country Taxation based on the kind of establishment New definition in Act captures non-residents deriving income in Sierra Leone 5
Thin Capitalization (1) Concept: debt versus equity financing Funding a project with excessive debt over equity Interest deductions to arrive at taxable income Implications High interest payments to related party could be counted as cost Taxable profit reduce drastically equity distributional profit reduced (in case government has equity) Re-examine capital structure provisions in current legislations 6
Thin Capitalization (2) International Taxation Tax income at source as opposed to residency of beneficiary Service Fees and Contract Payments Provide better definitions to embrace all activities in substance as opposed to forms Arms length Arrangement between Associates Minimize transfer pricing practices Strengthen anti-avoidance provisions 7
Finance Lease Concept: Just as a lease Lessor or leasing company grants contractual agreement to lessee (individual or group) to operate equipment for a term of leasing Monthly payments for operation of the equipment are made to lessor or leasing company by the lessee as specified in the agreement This may also include installment sale Implications These transactions are normally not captured Cost could be high Revenue implications New provisions are to ensure all leasing transactions, including sale back options are captured 9
Private Ruling (1) Written expression of opinion by the tax authority (NRA) about the way in which tax laws and other specified laws administered by the authority (NRA) would apply to, or be administered in relation to, an entity in relation to a specified scheme Applications for and objections against private ruling can be made Generally, taxpayers can object to adverse private rulings or a failure to make a private ruling in much the same way that they can object to assessments 10
Private Ruling (2) Taxable persons planning cross-border transactions to one or more of neighbouring countries may wish to ask for such a ruling with regard to the transactions they envisage New provision to include private rulings for all revenue collected by NRA Legislation can provide specific details 11
Other Issues 12
Electronic Cash Register Concept The system allows all transaction to be remotely recorded at the NRA main server and has inerasable memory Once system is installed, it requires all registered GST traders to acquire such machine whereby all transactions are inputted and receipt generated instantly Implications Domestic GST compliance will improve Revenue will improve Reliable source of data Provision for its application 13
Zero Rate Mineral Export The law originally exempt minerals from GST International best practices require zero-rating of export with GST This has been reflected as a new provision to allow mining companies to pay GST and claim it at the end of production Minerals are no longer exempt supplies as provided in the GST Act 2009 14
Promotion of Investment in Refinery Investment incentives provided to encourage investment in the oil and gas sector For the construction of refining facilities Improve facilities for marketing and distribution 15
Promotion of Investment in Manufacturing Encourage manufacturing to boost export The opportunity to actively promote export diversification and investment in manufacturing 16
Promotion of Investment in Agriculture Fiscal incentives on all agricultural inputs, including vaccines for poultry and livestock Fertilizers Pesticides Seeds and seedlings Hybrid tree seeds Seed animal for feeding purpose Day-old-chicks, etc 17
Work Permit Tax Clearance Certificate The need to strengthen compliance with employment taxes (payroll, PAYE taxes, etc) Tax clearance certificate a requirement for the renewal of permits for all foreign workers 18
