The controversial introduction of Value Added Tax (VAT), a move government is pushing through to boost tax collection from consumption amid decreasing revenues of oil, is the latest turn to a freefalling Angolan economy.
Initially set for July 1, the imposition of the tax has been postponed to October following resistance from some sectors over what goods and services are exempt.
The VAT Code, which revokes the previous Consumption Tax, provides for a single rate of 14 percent for all imports of goods and for all large taxpayers with income above Kz15 million (US$44 000) and large public enterprises as well as banking institutions.
As opposed to the current tax regime, where only specified services are subject to tax, under the new system, all services will be subject to VAT
The Industrial Association of Angola (AIA) decried the implementation of VAT in education and health.
“VAT application will be harmful to parents and patients,” José Severino, AIA head, told media.
Angola, Africa’s fifth-largest economy by gross domestic product (GDP – US$124,2 billion) is the only country in the 16-member Southern African Development Community (SADC) region yet to introduce VAT.
Portugal, the former colonial power, is providing technical assistance by training over 20 officials from Angola in Tax Administration.
Angola and Portugal last year sealed the 2018/2022 Strategic Cooperation Programme and an agreement on “mutual administrative assistance in tax matters.”
José Leiria, the director of the General Tax Administration, said the postponement followed concerns by industries and the public.
“The memorandum (on the flexibility of VAT) reflects the main concerns raised by businesspeople and civil society,” Leiria said.
President João Lourenço stressed the ruling People’s Movement for the Liberation of Angola (MPLA) considered VAT as the world’s “fairest” tax.
“The possible rise in prices blamed on VAT is groundless,” he said in the capital Luanda during the party’s recent Extraordinary Congress.
Anxiety over the tax regime points to a prolonged period of uncertainty for Angola, sub-Saharan Africa’s second-largest oil producer.
The country is battling decreasing revenues from the commodity while the weakening Kwanza currency is declining.
The declining revenues are attributed to falling exports, with figures indicating a decrease of 12,4 percent year-on-year to $13,2 billion from January to May this year. During the period, the average export price fell by $3,70 to $62,70.
The volume of barrels exported by the Southern African country dropped by more than 7 percent.
Nonetheless, the Ministry of Finance has disclosed that Angola’s revenues from oil were at their highest levels, in May, for the year at $2,9 billion.
Despite embarking on some structural reforms in the sector, Angola is still suffering the effects of lower oil prices and production levels, with an estimated GDP contraction around 1,5 percent in 2018, according to the World Bank.
The prospects look bleak for Angola (second to Nigeria in production) as the oil sector still accounts for one-third of GDP and more than 90 percent of exports.
“Economic growth is expected to remain subdued in 2019 because of a lower oil price forecast and the oil production cap set by the OPEC (Organisation of the Petroleum Exporting Countries) agreement,” the World Bank stated.
There is some glimmer of hope nonetheless with firming oil prices and announcements by a petroleum firm to expand operations.
In December, major oil producers reached a deal to cut oil production and boost the market.
The sector would welcome the price of a barrel of oil sold by OPEC increasing by over 22 percent, from 2017, the average price of a barrel of oil to $64,15 over the first five months of 2019.
Recently, BP Angola announced it would begin drilling wells in the Platina field in deep waters of Block 18 by the middle of 2020. The project will be the first new development by BP Angola since the beginning of production at Block 31 in 2013, where it produces 110 000 barrels of oil per day.
BP Angola intends to produce 137 000 barrels per day.
Meanwhile, the Kwanza currency has been trading at its lowest value ever against the Dollar ($1/ Kz341,9) and Euro (€1/Kz389,5). The local currency has depreciated by over 51 percent from the beginning of 2018.
* Published by African Press Association, APA