Home | Business | ESWATINI MOVES TO PLUG TAX FRAUD HOLES

ESWATINI MOVES TO PLUG TAX FRAUD HOLES

07/12/2021 08:26:00 BY ASHMOND NZIMA

Font size:

MBABANE - The world is losing billions to international tax abuse.

Eswatini is no exception. Almost half of the money lost is due to multinational corporations shifting profits into tax havens in order to under report how much profit they have made in the countries where they do business. Additional tax is said to be lost to wealthy individuals who hide undeclared income and assets offshore, far from the reach of the law. This publication recently reportedly that Eswatini was not an exception to such ill practices. As reported by the Tax Justice 2020 report, Eswatini loses up to E281 million to corporate tax abuse and offshore tax evasion.

In reaction to the unwanted developments, the ministry of finance said fair taxation was a priority for Eswatini Government. “The country is continuously putting in place measures to tackle tax avoidance and tax fraud. Unpaid taxes have an extremely negative effect on the economy and directly translate to increased debt or smaller budgets,” said Setsabile Dlamini, who is Communications Officer in the ministry. Dlamini recalled that since October 2018, government, through its Programme of Action 2018 – 2023, had been wrestling with the fight against tax fraud, evasion and avoidance, as well as financial transparency in taxation.“During the 2018–2023 Parliamentary term, Parliament promulgated and continues to promulgate tax laws to address the challenge of tax fraud,” she said.

Tax Bill Amendment

Some of the main legislative proposals in recent years regarding tax related laws include the Income Tax Amendment Bill, 2021. Dlamini highlighted that the Bill sought to broaden and to protect the tax base by minimising the erosion of the tax base. The Bill introduces a number of revenue enhancement measures aimed at generating additional revenue for government. “These revenue enhancement measures are in the form of introduction of new forms of taxes and other measures are in the form of strengthening of certain administrative provisions that need to be improved.

Multilateral Instrument

“It is normal for tax rules to be constantly considered as the tax payers are constantly finding ways of using ‘loopholes’ in the tax legislation to avoid paying taxes,” she said. Dlamini further said the country was seeking to address the tax challenge through a request to join the Multilateral Instrument (MLI), 2021. The Multilateral Convention to implement Tax Treaty related measures to prevent Base Erosion and Profit shifting, also known as the Multilateral Instrument (MLI) is a multilateral treaty that enables jurisdictions to swiftly modify the operation of their tax treaties to implement measures designed to better address multinational tax avoidance and more effectively resolve tax disputes.

These measures were developed as part of The Organisation for Economic Co-operation and Development /G20 Base Erosion and Profit Shifting Project (OECD/G20). The MLI offers concrete solutions to governments to close gaps in existing international tax rules by transposing results from OECD/G20 BEPS into bilateral tax treaties worldwide. It, therefore, modifies the application of thousands of bilateral tax treaties concluded to eliminate double taxation without creating the opportunity for double non-taxation or less-than-single taxation through tax evasion or avoidance.

“The Multilateral Instrument is an efficient tool that could modify all Eswatini’s tax treaties at once and ensure the swift and consistent implementation of measures to counter BEPS. It contains measures which were adopted by consensus in the course of the BEPS Project and that were identified as globally necessary to address BEPS,” she said.

The country joined membership of the Inclusive Framework on BEPS in July 2019. OECD/G20 BEPS) package adopted in October 2015 has minimum standards against treaty abuse and to improve tax dispute resolution that, once implemented, will strengthen tax treaties and restore their purpose – to eliminate double taxation and facilitate investments without creating opportunities for tax avoidance.

The Eswatini Government can now implement these minimum standards in its bilateral treaties by signing the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument). The country reportedly committed to join the MLI before December 31, 2019, during a workshop with Global Forum Officials. It transpired that the first step was to join the Inclusive Framework on BEPS by Implementing the BEPS Action 6 minimum standard through bilateral renegotiations or by joining the MLI. The Inclusive Framework on BEPS allows countries and jurisdictions to work with the OECD and G20 members on developing standards on BEPS related issues and review and monitor the implementation of the BBEPS package.

The focus was then shifted from the processes of joining the MLI to the processes of joining and implementing the Inclusive Framework on BEPS minimum standards. “The Ministry views the MLI as an instrument that will benefit the country as it aims to modify its existing bilateral tax agreements network (currently made up of seven treaties) in a synchronised and efficient manner in order to swiftly implement the BEPS Action Plans to avoid tax treaty abuse in its existing tax treaty network.

“Eswatini’s tax treaty network consist of a number of Double Taxation Avoidance Agreement (DTA’s) which are old and outdated and need to be amended to be in line with the BEPS Action Plan recommendations. Amending these DTAs using the traditional method of renegotiation and through the use of a protocol would be lengthy, and resource consuming,” said Dlamini. Furthermore, the country is said to be in a process of negotiating further DTAs with other countries some of which are already members of the MLI. Some aspects of the MLI has already been co-opted into Eswatini’s DTA Negotiation Model to address BEPS Action Plan recommendations in future DTAs the country intends to enter into. The ministry is also said to be working on proposals to update the Value Added Tax (VAT) framework, 2021.

VAT update

There are proposed amendments to the Value Added Tax Act, 2011 (Act No.12 of 2011) and Value Added Tax Regulations, 2012: Value Added Tax (Amendment) Bill, 2019. In addition, there have been many proposals to update the VAT framework.There are ongoing proposals that the VAT Act is amended so as to provide for the manner of dealing with bonded goods; delegation of powers of the Commissioner General; criminalisation of certain acts; and to provide for incidental matters which includes catering for provisions displaced from Regulations with the aim to give effect to the VAT Act.

Furthermore, it is proposed that Schedules to the VAT Act are amended so as to integrate developments attributed to changes in market forces. It is proposed that Regulation 22 of the current VAT Act is amended in order to address challenges associated in applying VAT Act on donor funded aid projects as enshrined in Section 238(1) of the Constitution of the Kingdom of Eswatiniwith the of improving accuracy of VAT collections.