Corporate Income Tax Falls From 27.5% to 25% Effective 1 July 2024

By Phiwa Sikhondze

The Eswatini Revenue Service (ERS) has announced a series of amendments to the Income Tax Order which is aimed at balancing revenue generation with economic growth.

The changes include a notable reduction in the corporate income tax rate and the introduction of a Presumptive Tax Regime for small businesses. These amendments are set to take effect on July 1, 2024.

The amendments stem from the Minister of Finance’s budget speech earlier in February and aim to strike a balance between raising sufficient revenue for government services and fostering economic growth. One of the most significant changes brought by the amendments is the reduction of the corporate income tax rate from 27.5% to 25%.

ERS Commissioner General, Brightwell Nkambule when making his remarks during a media breakfast briefing today noted that the reduction in the corporate income tax rate is expected to stimulate new investments, encourage the growth of existing investments, create more jobs, and enhance the overall contribution to the nation’s economy.

The amendments will also see the introduction of the Presumptive Tax Regime which is designed to ease the burden of compliance for smaller taxpayers, allowing taxpayers with a turnover below E500,000 to maintain minimal records, without involving professionals and those receiving investment income. The rates under this regime are set at 0% for turnovers up to E50,000 and 1.75% for turnovers between E50,000 and E500,000.

Henry Sukati, the ERS Director of Legal Operations, elaborated on the broader scope of these amendments. He underscored the necessity of broadening the tax base to prevent the need for tax rate increases and detailed several other changes, including the introduction of specific regulations for the disposal of business assets, measures to combat base erosion and profit shifting by multinational corporations, and updates to the tax treatment of various financial transactions.

Additionally, businesses will now be allowed to carry forward losses for a maximum of five years, with exceptions for long-term investments such as timber and orchards.

Adjustments in tax rates for non-resident shareholders, interest, and royalties are set to enhance Eswatini’s leverage in double taxation agreements. The withholding tax rates for non-resident shareholders have increased from 12.5% to 15%, with similar hikes for non-resident tax on interest and branch profits.

The ERS has introduced procedural enhancements, including the requirement for liquidators to notify the ERS and the adoption of the “Pay Now, Argue Later” principle to expedite tax dispute resolutions. Other notable changes include:

Transfer Pricing

The current transfer pricing legislation under Section 65 addresses transactions, operations, or schemes designed to avoid, postpone, or reduce income tax liability. Specific definitions related to intra-group transactions are outlined in Section 2. To curb tax avoidance, the legislation imposes a 30% limit on the deductibility of interest relative to EBITDA.

Tax Rate Changes  

The tax rate changes include an increase in withholding taxes: for non-resident shareholders from 12.5% to 15%, non-resident tax on interest from 10% to 15%, and branch profits from 12.5% to 15%. Payments are due on or before the 15th day of the month following the payment month. Additionally, a return must be submitted, with a penalty of E25 per day imposed until the return is received.

Capital Allowances

The changes to capital allowances include a decrease in the allowance from 50% to 30%, with a minimum threshold of E5 million. Gains and losses on the disposal of business assets are to be included in taxable income, and the cost base of a business asset will be measured at market value with special rules applied.

Losses Carried Forward

The carrying forward of losses is now limited to five consecutive years of assessment, excluding timber and orchard plantations. Timber plantations can carry forward losses until the timber matures, and orchard plantations can do so until the orchard becomes productive.

Other Notable Changes:

•  Company Secretary included among public officers with delegation powers.

•  Introduction of Distress Proceedings and Duties of Receivers.

•  Payment pending objection/appeal process clarified.

•  Introduction of Preservation Funds.

•  Increase in allowable deduction for farmers from E60K to E100K.

•  Independent insurance brokers deemed employees for tax purposes (PAYE).

•  PAYE Return requirement with a penalty of E200/day for non-compliance.

•  Revised penalties for various tax compliance failures set at E25/day, capped at E10K.

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