Focus on compliance, additional 2.5% VAT to impact cost of doing business – KPMG to government

November 30, 2022 / Comments (0)

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Accounting firm, KPMG says the imposition of an additional 2.5% Valued Added TAX (VAT) on standard-rated supplies would impact cost of doing business in the country.

It, therefore, wants government to focus more on compliance measures to ensure that those outside the tax net are brought in.

The additional rate would move the effective VAT rate from 19.25% to 21.90%.

This additional cost, it said, is most likely to be passed on to consumers.

“In these difficult times, increasing VAT will worsen the plight of taxpayers, leaving them with little disposable income”.

It stressed that compliance is the way to go because it can rake in more revenue.

For instance, it said, the recent VAT invigilation initiative was reported by the Commissioner-General to have yielded about 1,700% increase in revenue for a period, adding, “These initiatives should be encouraged”.

Reducing e-levy threshold may wipe off effective impact of rate reduction

The government intends to reduce the existing Electronic Transaction Levy (E-Levy) rate from 1.5% to 1% to increase the patronage of mobile money transactions and enhance government’s revenue mobilisation drive from E-Levy.

KPMG said reducing the e-levy to 1% is a great idea but removing the threshold may wipe off the effective impact of the reduction.

“The situation of the vulnerable who were being protected when the law was passed has even become worse because of the current economic hardship. Government must reconsider the removal of the threshold”.

“Other areas government could consider is to place a cap on the levy based on a defined transaction threshold and consider other proposals for review of the exclusions under the levy to further enhance usage of digital payment platforms”, it added.

Engage stakeholders before implementing indirect taxes

For some indirect tax measures, government intends implementing Customs Tariff with the 2022 version of the Harmonised Commodity Description and Coding System (HS Code) to enhance uniformity of trade within the region.

KPMG said there have been several discussions on the full restoration or withdrawal of the benchmark values.

“While others are of the view that withdrawal would make imports expensive and thus increase prices, it is
also expected that withdrawal of the policy would boost local production to support our local industries”.

To be successful with this policy, it urged government to engage all stakeholders to reach a pragmatic consensus.


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