2007 is year of tax “revolution” in Sao Tome and Principe

2 April 2007

Sao Tome, Sao Tome and Principe, 2 April – The Sao Tome and Principe archipelago is preparing a true tax “revolution” this year, aiming to adopt the best international standards and thus increase revenues and attract foreign investment, officials have said.

Included in the main reforms, agreed with the International Monetary Fund (IMF), is the new investment code, which will give international investors equality of treatment in relation to domestic investors, seeking to attract capital to the archipelago at a time when the economy is showing signs of greater openness, mainly thanks to oil exploration projects, which are underway or being prepared with Sinopec.

According to the memorandum of understanding recently presented by the archipelago to the IMF, the new investment code will “ensure the repatriation without restrictions of capital gains and profit and establish conditions of access to tax exemption regimes.”

The new investment law is scheduled to be implemented by June, and the remaining reforms being prepared will be enforced throughout this year and the next, following parliamentary approval.

For the process of internationalization of the Sao Tome economy it will also be essential to pass the new Customs Code, which will “unify disperse legislation and give customs the tools to calculate import values,” according to the government’s plans.

“The customs processes will be updated and alternative methods considered for gradual application, as the administration capacity of the customs service grows.”

Central to the entire process will be the new Tax and Tax Process Codes, which following approval will be almost immediately implemented – 90 days after parliamentary approval.

These codes aim to “modernize the procedures of the tax administration and create specialized courts to resolve resources and collect taxes,” which the IMF considers “critical” as “under current legislation, the tax authorities have few means to combat tax evasion.”

With the reforms and the expected boost to the economy when oil exploration begins, it is expected that the archipelago’s tax revenues grow at a “peak”, almost doubling between 2006 and 2010.

The IMF’s latest report on the archipelago projects total tax revenues of 509 billion dobras within three years, while last year tax revenues stood at 256 billion, and should rise by over 23 percent this year.

Next year the government is scheduled to implement the most “painful” taxes for Sao Tome residents – those applied to companies and personal income.

According to what was agreed between the government and the IMF, all types of personal income, not merely salaries, as is currently the case, will be taxed and the applied tax rate will increase as incomes rise.

In the case of corporate taxation, the current rate is due to be reduced from between 40 and 45 percent, bringing it down to “close to international levels.”

It is expected that the reduction, along with the modernization of the tax system, will make it possible to increase the number of corporate taxpayers.

Tax reform is considered to be an essential element to reduce future dependence on oil revenues, maximizing the effect of the recent debt pardon on economic growth and poverty reduction in Sao Tome and Principe.

The revenues from the signing “bonus” of oil exploration contracts are on the increase and will reach a peak between 2007 and 2008 – close to 800 million dobras, which is equivalent to the last four years of the State’s tax revenues. (macauhub)