August 2014 Newsletter: THE SUCCESS OF TAXATION & CUSTOMS DEPENDS ON THE EFFICIENCY OF THE ENTIRE SYSTEM

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1 August 2014 Newsletter: THE SUCCESS OF TAXATION & CUSTOMS DEPENDS ON THE EFFICIENCY OF THE ENTIRE SYSTEM

2 Foreword from Our CEO At ICF, we understand the impact of ineffective customs and taxation systems on the economy. ICF thus focuses on working with governments to modernize taxation and customs processes to not only lessen the time involved but also to reduce costs. William Asiko - CEO of ICF Africa Index bookmark Taxation and Customs News African Taxation & Customs Progress with ICF Africa ICF Activity Map around Taxation and Customs 2. Ethiopia 3. Zambia 4. Senegal More ICF News 5. Benefits of Business Registration: Lessons from Africa Investment Climate facility for africa 2

3 African Taxation & Customs Progress with ICF Africa bookmark Efficient tax systems enable taxpayers to meet their tax obligations quickly and cost effectively, often by making the process simpler and more transparent. It encourages businesses to comply with their tax obligations and also encourages those in the informal sector to formalize their businesses, bringing economic benefits to the country. Efficient and quick customs procedures encourage cross-border trading and international trade. They encourage greater compliance and stimulate new business opportunities which help to enhance competition. Single Window systems for trade facilitation provide even greater efficiency as they provide an electronic platform for all parties involved in the export and import of goods to submit, receive and process documents used for trade related cargo. ICF helps African governments to improve their tax and customs administrations so that businesses can pay taxes easily and can import and export goods quickly. Efficient tax and VAT systems encourage greater compliance and help to formalise the economy which brings important benefits to government and civil society. They also benefit businesses which make fewer and simpler payments. Streamlined customs processes can help encourage cross-border and international trade. By stimulating new business opportunities, robust customs systems can help enhance competitivity and ensure greater compliance. Burkina Faso: Facilitation of Custom Procedures ICF is working in partnership with the Government on a fourth project which will streamline customs procedures for import and export of goods reducing the preclearance process from 15 to 3 days and the processes for import from 10 to 7 and for export from 10 to 3. Investment Climate facility for africa 3

4 Ethiopia: Modernization of Tax Authority ICF is supporting a project with the Government of Ethiopia to modernise the Ethiopian Revenues and Customs Authority (ERCA). The project will introduce an electronic filing and payment system to streamline procedures at the ERCA, reducing the time it takes to submit tax forms and effect payment to just one day and reducing the number of procedures to submit tax application and effect payment to just three. The project is being implemented in close collaboration with the private sector throughout its four year life-span and beyond, and will combine taxpayer education and staff training programmes to ensure the project is truly sustainable in the long-term. Kenya: National Single Window Project for Trade This project aims to facilitate international trade in Kenya by reducing processing delays and lowering costs associated with clearance of goods at the Kenyan borders. It will do this by establishing an electronic single window platform for submitting, receipting and processing documentation used in clearing trade-related cargo. The electronic single window will be the sole entry point for lodging trade transaction documentation in Kenya. It will link up key trade stakeholders such as the Kenya Revenue authority, Kenya Ports Authority, Kenya Bureau of Standards, Kenya Plant Health Inspectorate Services, Port Health Services with clearing and freight forwarding agents and banks. Lesotho: Reform of the VAT Regime ICF partnered with the government of Lesotho on a pilot project to simplify the assessment, administration and collection of VAT. A diagnostic study was conducted on the Lesotho Revenue Authority s (LRA) VAT administration systems, resulting in the implementation of a number of measures to improve efficiency. Tangible benefits to business include the simplification of processes with a unique TIN and fewer steps saving time and positively affecting businesses cash flow. Now business owners can lodge VAT requests in 24 outlets rather than three and it takes just one day to register rather than 14 requiring two signatures for approval instead of seven. Liberia: Computerisation of Customs Department A project in partnership with Liberia s Ministry of Finance, has computerised the manual paperwork systems in the Customs House and Port of Monrovia and provided basic computer training to 110 customs employees on the new systems. The project is a component within Phase 1 of a larger and longer-term Trade Logistics Project, being undertaken by the Government. It now takes an average of 4 days, instead of 30, for goods to be released involving only nine procedures instead of 14. More efficient customs systems will help to encourage cross-border and international trade. They will also help to stimulate new business opportunities, enhance competitiveness and Investment Climate facility for africa 4

5 ensure greater compliance, which will all make the processing of goods less time-consuming and costly to business. Mozambique: Modernization of Taxpayer System A second project will modernize the Mozambique Revenue Authority. Phase 1 aims at giving the Mozambique Revenue Authority a more customer oriented face through improved interaction with the taxpayer and taxpayer education. Rwanda: Modernization of Tax Administration A third project will modernise tax administration by improving customer services and communications at the Rwanda Revenue Authority (RRA) and establishing an online electronic filing and payment system, further reducing the time and costs associated with doing business in the country. The new project, endorsed by both the Government of Rwanda and the private sector aims to streamline administration of domestic taxes at the RRA in order to reduce time and costs faced by business tax-payers reducing the time it takes to process VAT, income and employment tax returns from four weeks to just one or two days. It will also allow for tax clearance certificates to be issued in 10 minutes instead of three days. Key project objectives include capacity building and training, improving communications and customer care at the RRA, as well as the establishment of e-filing and e-payment systems. The project will increase transparency, create a fair, competitive and consistent tax regime and a more conducive business environment in Rwanda. Senegal: GAINDE Paperless Trade Phase I The first phase of a programme in partnership with GAINDE 2000, a public-private partnership acting as the implementation agency, to streamline and refine the existing system of paperless electronic customs administration. The first phase of our involvement focused on increasing the efficiency of Senegal s paperless pre-clearance process. Through the provision of technical support and investment in IT equipment, this phase of the project has successfully redefined and streamlined procedures, resulting in a reduction in the issuing of customs pre-clearance declarations from two days to a maximum of seven hours. The project cost is shared equally by ICF and GAINDE 2000 whose services have already sped up processing of certificates of origin and other import documentation by over 30%. Before ICF support, the processing time for pre-customs declaration was two days, whereas it now takes now longer than seven hours (85% faster). Likewise, 853 certificates of origin were processed by GAINDE in 2007 but with ICF support this increased to 1,983 certificates in Private sector users are already reporting that systems enhancements are having a direct positive impact on their daily business, in terms of time and costs saved. Investment Climate facility for africa 5

6 GAINDE Paperless Trade Phase II The second phase of the programme commenced activity in 2009 will render the Port of Dakar s customs clearance process entirely paperless. This will be achieved in two stages over the next two and a half years. Firstly, on a national level, the pre-clearance (ORBUS) and clearance (GAINDE) systems will be connected. Then, at an international level, the ORBUS pre-clearance platforms will be linked with those in Europe, Asia and East Africa. By interconnecting electronically, the Senegal s Customs Administration and Port Authority has committed itself to achieve non-stop 24 hour operations in the Port of Dakar. The second phase of the project aims to reduce the time associated with the custom clearance process by a further 50%, from an average of 18 to just 9 days. An improvement of this scale will put Senegal s customs administration system on a par with countries like France and Spain where it currently takes nine days to clear customs. The paperless pre-clearance system has been extended to 31 stakeholders including banks and insurance firms. Modernization of Custom Authority ICF worked with the government of Senegal to refine the paperless electronic customs administration system, reducing the time it takes to issue pre-clearance declarations from two days to just seven hours. As a result of the project, the number of certificates of origin processed anually has risen from 853 certificates before the project commenced to 1,983 certificates. ICF s second project in Senegal will render the customs clearance process entirely paperless and link the pre-clearance platforms with Europe, Asia and East Africa. The paperless pre-clearance system has been extended to 31 stakeholders including banks and insurance firms and the ultimate aim is to reduce the time it takes to clear customs from 18 to nine days. Following the successful implementation of this third project, the entire Senegalese custom declaration system will be streamlined and automated. The new project will refine and digitalize processes, and introduce electronic data exchange to the Customs Authority. ICF s third project will modernise the Customs Authority by streamlining and automating the entire custom declaration system, reducing the time it takes to declare and release goods from 33 to five days. Modernization of Tax Administration ICF is working with the Government of Senegal to streamline the country s tax administration system, generating significant time and cost savings for the private sector. The project will enhance the existing regulatory and administrative framework by automating and refining processes and digitalising tax records. The project aims to reduce the time taken to complete corporate tax and VAT refunds to a maximum of 30 days, instead of over 175, and paying taxes to take just 15 minutes rather than two days. Investment Climate facility for africa 6

7 Tanzania:Modernization Customs Administration Phase I ICF is also assisting the Tanzania Revenue Authority (TRA) to procure integrated customs administration software, ensure timely bank transfers, harmonise procedures between TRA and TBS (Tanzania Bureau of Standards) and encourage compliance amongst the users of the Tanzania s ports. The project will deliver integrated custom administration software to streamline procedures, reducing the time taken to clear customs to eight days and eleven procedures. Zambia: Modernization of Tax Administration: Phase 1 and 2 ICF is supporting a project aimed at making the Zambia Revenue Authority (ZRA) a more customer-oriented organisation, educating taxpayers on tax regulations and improving their understanding of ZRA and its services. It will also include implementation of a new IT system to permit a complete integration of the tax administration. Investment Climate facility for africa 7

8 ICF Business Registration The Benefits of Business Registration: Lessons from Africa Africa is a land of opportunity for business, declares Donald Kaberuka, President of the AfricanDevelopment Bank Group (AfDB). Home to 6 of the top 10 fastest growing countries 1 in the world, Africa s vast investment potential has never been more attractive. When foreign investors consider investing in Africa, they look at a range of indicators, such as political stability, security, etc. to determine the risk factors. Investors often view countries that impose excessive administrative costs and processes as a signal for possible intrusion in a business operations. In the recent past, many African countries, and organizations like ICF that assist them, have made great efforts to reduce the time and costs businesses incur in meeting legal and regulatory requirements. One of the key focus areas that African governments pay particular attention to is the process of business registration. For example in 2014, to start a business in Guinea-Bissau requires 9 days, while in Rwanda it takes only 2 days 2. Taking the above into consideration, it is easy to see which country would appeal to investors and which would not. A simple, fast, and transparent business registration processes enables investors, both local and foreign, to register as quickly as possible. A registered company benefits from access to credit, is able to hire full time employees in accordance with the country s laws, has more leverage when negotiating with suppliers, and shows clients and consumers that it is a legitimate business. The sooner a company can start operating, the sooner it can start earning money. A delay in the business registration process therefore, not only consumes valuable time but also increases costs, which some businesses cannot afford. Once registered, a business becomes a legal entity, which opens up avenues for growth and expansion. In addition to business registration, businesses often need various licenses and permits to legally operate in a specific area. From tourism licenses to construction permits, these licenses are key in enabling a business to function legally In Cape Verde for example, ICF and the government of Cape Verde worked together to enhance administrative services for business registration, licensing and closure. The project established an electronic one-stop-shop for business life-cycle services by incorporating licensing and closure services into the existing e-government system and extending the reach of the one-stop shop Business in a Day service centres across the country. The initiative reduced the time taken to license various business activities (wholesale and retail trading, tourism and travel agency, construction and industrial) from days to two-ten days. The key to successfully implementing these modernization reforms centers on managing change and addressing resistance to change. Although tremendous strides to streamline the often lengthy and complicated business registration process have been made, it is important to note that political instability, corruption, security, etc. all contribute to the changing investment climate. Nonetheless improving business registration and licensing processes is the first step it formalizes the economy by easing an enterprise s entry into the formal sector, strengthens the private sector by enabling it to access credit needed for growth and expansion, and stimulates employment which provides important benefits to society. (1) For a full list please see click here (2) World Bank Africa Development Indicators 2014: here Investment Climate facility for africa 8