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Tax and other government revenue

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This article is by Michael Medley.

Michael would welcome a co-author, or other authors to further develop aspects of this topic. If you might be able to help, please see the contributing page.

Tax name National rates
Personal income tax
  • On monthly income:
    • SSP 301-5,000: 10%
    • >SSP 5,000: 15%
Business profits tax
  • Small businesses: 10%
  • Medium businesses: 15%
  • Large businesses: 20%
Excise tax
  • Tobacco, spirits: 30%
  • Wine, beer: 20%
  • Soft drinks including water: 5%
  • Cars and motorcycles: 15%
  • Trucks and buses: 10%1
  • Vehicle fuel: 5%
  • Air transport: 10%
  • Telecommunications: 10%
  • Insurance premiums: 5%
Sales tax
  • Goods produced by:
    • small businesses: 10%2
    • medium businesses: 15%2
    • large businesses: 15%2
  • Hotel, restaurant & bar services: 15%2

Table 1: Major taxes and their rates

Sources: The Taxation Act, 2009, The Taxation (Amendment) Act, 2011, The Taxation Act (Amendment No. 2) Provisional Order, 2012.

Notes:

  1. A 10% tax on buses and trucks was included in the 2009 Act, but not mentioned in the revised schedule of excises goods in the 2011 amendment. It is not clear to SSCinfo whether this levy was abolished or not.
  2. These amounts include a 10% surcharge imposed through the 2012 Provisional Order, to be effective during the period of the Austerity Budget.

Meaning of 'revenue'

'Revenue' here means any money which the government gets for its budget. In a narrow sense the word sometimes only refers to money from regular taxes and official fees. But it could also include sales of public property (including oil/petroleum), drawing on reserves, and borrowing.

 

Recent quantity of revenue: oil and non-oil

For 2010, total government revenue was estimated at SDG 5.8 billion (equivalent to approximately USD 2.5 billion at the official exchange rate), of which about 98 per cent came from shares of production in oil (petroleum) (ref). SSCinfo does not have equivalent figures for later financial years. But in January 2012 oil extraction was suspended, due to conflict and disputes with Sudan. The 2012-2013 national budget envisaged financing most of the government's needs from borrowing, reserves and sale of concessions (ref). But it also relied on an expanded contribution from regular non-oil revenues, reaching to about ten per cent of the budget. Indeed, according to finance ministers monthly non-oil revenues have risen from SSP 29m in December 2011 to SSP 54m in April 2012 (ref) to SSP 70m in August 2013 (ref).

 

Efforts to increase non-oil revenues

Increasing non-oil revenue is seen as an important strategy for the government in view of the instability and likely decline of oil revenue (see article on oil/petroleum issues).

How have the recent increases in non-oil revenue have been obtained? The budget speech in June 2012 referred to clarification and streamlining of tax collection, particularly as between the central Directorate of Taxation and the authorities in the various states (ref). For more on this, see below. Another likely area of improvement has been in the system for making automatic deductions on payrolls of formal-sector employees.

It is unclear to SSCinfo how much more the revenue can be expanded by this kind of technical improvement. Beyond this, further enlargement may require new forms of taxation and fees or – importantly – growth of the non-oil sectors of the economy.

 

Tax laws

At the time of writing the main tax laws seem to be:

 

The kinds of tax and other revenues being collected

The abovementioned tax laws envisage four main kinds of tax:

  • personal income tax
  • business profits tax
  • excise tax
  • sales tax.

The main categories under these taxes, and rates at which they have been charged, are shown in Table 1.

Besides these, the laws provide for the government institutions to set 'institution taxes, fees and charges' as agreed with the finance ministry (ref). For the 2012-2013 tax year, the finance ministry aimed to collect about two-thirds of non-oil revenue through taxes and one third through fees and charges (ref). According to legislation, the various fees and charges should be published in a list kept by the finance ministry. But this list does not seem to be maintained on the internet, and SSCinfo has not seen it.

Some forms of taxation and revenue seem to be largely outside the scope of these taxation laws, though they are partly governed by other laws. Important categories are:

  • oil revenues
  • drawing on reserves
  • government borrowing
  • state-level taxation.

Oil revenues. It is unclear to SSCinfo exactly what the components are of these. Presumably they are largely detemined by the Exploration and Production Sharing Agreements (ESPAs) signed between GOSS and the oil companies. The Petroleum Act, 2012, requires the petroleum ministry to publish all EPSAs, but at the time of writing it seems that no EPSA has been made public (ref). EPSA's are reported typically to allocate a share of oil production for GOSS to sell (ref), but it is possible that oil companies are taxed in various ways as well. And besides a revenue flow when oil is being produced, oil revenues might include the sale of new concessions. In February 2013 it was reported that GOSS had recently sold several new concessions at prices between USD 200 million and USD 300 million, without making the details public (ref).

Drawing on reserves. The South Sudan Statistical Yearbook 2011 prints amounts of money moved in and out of reserves each year from 2005 to 2010 (ref). The reserves may have been in the form of the Oil Revenue Stabilization Account (ORSA) established under the CPA and administered under the Sudan Government of National Unity during those years. SSCinfo does not know how much money GOSS held in reserves at the time of Independence. But in the Austerity Budget at the beginning of the 2012-2013 financial year it was planned to draw down from them SSP one billion (ref).

Government borrowing. Similarly, the overall amount and structure of GOSS debt is unclear. The 2012-2013 budget set out aims to raise SSP one billion from domestic loans and SSP 3.7 billion from a combination of foreign loans and sales of concessions (ref). The boundary between the last two might be blurred if oil is used as collateral for loans. The domestic SSP one billion was reportedly raised through an issue of treasury bills in late 2012 (ref).

State-level taxation has a basis in the Transitional Constitution (Article 179), which says the states 'shall legislate for raising revenue or collecting taxes' from various possible sources. Some of these sources correspond to provisions in the taxation laws, and some do not. The states have adopted a variety of approaches. One is to use a traditional kind of poll tax, that falls on each community, person or family, in which chiefs help the local government (or army) to collect cash, grain or animals. A recent example of this is described by Hou Akot Hou in The Niles. This kind of system faces particular problems of transparency and accountability, but it may have the virtue of creating a more direct relationship between the government and the people, in which people get more of a sense of their moral claim on government.

 

Questions to pursue

  • What is the breakdown of income from different kinds of tax and charge?
  • What are the terms of the production-sharing agreements between GOSS and the oil companies?
  • What are the current practices of revenue collection in each state?
  • What are the prospects for harmonization of state and national revenue collection, and elimination of abuses?
  • Is there potential to improve the traditional poll tax?

Conflict between the centre and the states over tax

There seems to be some conflict between the state-based taxation mandated in the Transitional Constitution, and the Taxation Acts which envisage a nationally-centralized system of tax collection under the Directorate of Taxation (which is under the finance ministry).

This lack of harmony has meant that states and national authorities have sometimes been taxing the same items and activities. Indeed sometimes the same things seemed to be taxed more than twice. Because there is more than one tax authority, tax payers are often unclear about who is taxing them: a situation which can easily involve corruption. A clear example has been the stopping of freight vehicles at checkpoints on the roads. A 2011 survey (ref) found that such checkpoints were to be found on average every 25km along the major trade routes in South Sudan, and – except for one route – payment was demanded at 97 per cent of them. Often, no receipt was provided for the payment. This added greatly to the cost of trade and traded goods, and it was unclear at best how much of the money reached the public purse.

In an effort to clear up this situation, the national finance ministry has followed a policy of centralizing tax collection while negotiating with states on their shares of revenues. A partial agreement was reached in January 2013 (ref). But it appears not to have held in all respects. In Upper Nile State, for instance, the governor's office later curbed the activities of the national taxation authorities (ref). The state government had claimed that some of its activities were illegal, and also that it failed to supply adequate quantities of receipt books and other forms.

 


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