July 29, 2022
South Sudan enacts Financial Act 2021 - 2022
South Sudan's Financial Act, 2021/2022 (the Act) was assented into law by the President on 9 June 2022.
The Act amends various tax laws relating to Personal Income Tax (PIT), Business Profit Tax (BPT), Excise Tax, Custom Duty and other fees and charges imposed under the various Government of the Republic of South Sudan (GRSS) institutions. Generally, all sectors, excluding the petroleum sector, that had lower tax rates will now assess BPT at 30% of the taxable business profit. Also, operators in the insurance sector will be subject to BPT at 10% in addition to excise tax at 10%.
This Alert summarizes the key changes contained in the Act, which indicates that the changes take effect on 9 June 2022 (the date of assent by the President). However, on 15 July 2022, the National Revenue Authority (NRA) issued a circular on operationalization of the Act, indicating that the effective date of the changes is 18 July 2022. Therefore, taxpayers should consider utilizing the implementation date of 18 July 2022.
With these changes, the PIT/withholding tax (WHT) return for the month of July 2022 going forward and the Fiscal Year (FY) 2022 BPT return will be prepared and filed based on the provisions of the Financial Act, 2021/2022.
Personal Income Tax (PIT)
The tax bands as amended by Financial Act 2019/2020 have been retained as follows:
However, based on the NRA's circular, the schedule should not be taken as a graduated scale rate when computing PIT but an indication of the applicable tax rate on a specific level of income. For instance, an income of SSP6,000 is wholly subject to PIT of 10% and not just the SSP5,000 falling in the third bracket.
We note that this is a deviation from how the PIT computation was previously calculated and how graduated scale rates work in practice.
Deductions from gross wages in determining taxable income
An employee contribution to a funded pension scheme approved by the GRSS of up to 5% of gross wages is deductible from the gross income to determine taxable income. Previously up to 8% of gross wage was deductible for computing taxable income.
The change is meant to reflect the rates set out in the Civil Service Pension Scheme Act, 2013.
Exemptions from PIT
The Act has limited exemptions from PIT to only those provided under a signed Double Tax Agreement (DTA) with the GRSS.
This is likely to affect expatriates who previously have been exempted from PIT on the basis of other instruments aside from DTAs.
Surtax on PIT
The Act has reintroduced a surtax on PIT at 30%, which was suspended in 2014. This is an additional tax burden to employers as the surtax is borne by the employer.
Notably, the new e-tax system is yet to be updated with the surtax obligation. We understand that the NRA is working on this. However, as this surtax is now effective, taxpayers may consider providing for the accrued surtax on PIT as the system is updated.
The effective date for the PIT provisions is 18 July 2022.
Also, effective 18 July the applicable tax rate has been reduced to 10% (previously the rate was 15%).
Business Profit Tax (BPT)
Rate of BPT
The Act has repealed the scaled tax rates provided in Schedule II to the Taxation Act 2009 as well as the sector-based rates stipulated in the NRA's circular on Financial Act 2019/2020. Consequently, as provided under the Act, all businesses liable for BPT shall be subject to a flat BPT rate of 30% regardless of the size or type of the business.
BPT for insurance sector/companies
Further, the Act seeks to bring the insurance sector/companies into the ambit of the BPT. The Act includes a BPT rate of 10% for insurance sector/companies.
Insurance companies were previously exempted from BPT as provided under section 64 of the Taxation Act, 2009, which does not identify an insurance company as a business organization subject to BPT. Excise tax at 10% is still applicable to the insurance sector/ companies.
It is important to note that the definition for a business organization has however not been amended by the Act to include the insurance companies. The NRA circular has also not captured this change. The NRA is expected to provide further guidance and clarity to the affected taxpayers on the implementation of this new provision including the tax base for the BPT.
Advance BPT on importation
The Act has also increased the WHT rate of advance income tax on importation of non-food items from the previous rate of 4% to 5%.
No BPT exemptions would be allowed other than those provided under the Taxation Act, 2009 or a DTA between South Sudan and other countries.
These changes to the BPT point to the GRSS' focus to enhance its non-oil revenue. The effective date for the BPT amendments is 18 July 2022.
WHT rates on fees to nonresidents relating to the provision of technical/consultancy services/part-time work, has been increased to 20% from 15%.
The Act amends the excise tax rates on certain excisable services as follows:
US$ conversion rate
Under the Act, the exchange rate for conversion of merchandise values from US$ to SSP has been increased to SSP90 per US$1. Previously the exchange rate was SSP45 per US$1.
Customs duties rates
Custom duties on certain items have also been amended by the Act as follows:
Other Fees and Charges - GRSS institutions
The Financial Act 2021/22 has introduced/amended different fees and charges imposed under the various GRSS institutions. The specified fees and charges have been stipulated in Chapter 10 to 34 under Part 3 of the Financial Act 2021/2022. Per the NRA circular, the fees and charges will be collected by NRA officers to be posted at the different GRSS institutions.
The NRA has already issued a public notice on the implementation of the new provisions, which is effective from 18 July 2022 for all the tax changes. Therefore, it is important that the taxpayers understand the implications of the new laws to their businesses and strive to comply. Taxpayers should also seek direction and clarification on areas that require guidance from the NRA.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York