By Alois Vinga
FINANCE Minister, Mthuli Ncube has unveiled new Income Tax regulations compelling companies to disclose more details on transactions in what is aimed at smoothing the process of collecting tax.
Under Statutory Instrument (SI) 109 of 2019 published in the latest Government Gazette, Ncube has with immediate effect introduced the new measures.
“A taxpayer must have in place contemporaneous documentation that verifies that the conditions in its controlled transactions for the relevant tax year are consistent with the arm’s length principle,” the SI said.
The documentation required from now on includes an overview of the taxpayer’s business operations, history, recent evolution and general overview of the relevant markets of reference, organisational chart and details of business units.
Companies will be compelled to avail a description of their organisational structures, their legal form, their shareholding percentages and a general description of the role of each of the group members that carries out with respect to the group’s activities, as relevant to the controlled transactions.
Under the new regulations, an explanation of the selection of most appropriate transfer pricing methods and where relevant, the selection of the tested party and financial indicators must be availed.
“Comparability analysis, including, description of the process undertaken to identify comparable uncontrolled transactions, explanation of the basis for rejection of any potential internal comparable uncontrolled transactions,” said the SI.
There will be a requirement to provide an explanation of the basis for rejection of any potential uncontrolled transactions as well as a description of the comparable uncontrolled transactions.
The explanation must include an industry and economic analysis, budgets accompanied by projections relied on and details of advance pricing agreements or similar arrangements in other countries that are applicable to the controlled transactions.
Companies will also be required to provide a conclusion as to the consistency of the conditions of the controlled transactions with the arm’s length principle and any other information that may have a material impact on the determination of the taxpayer’s compliance.
The new regulations are in line with Ncube’s key objectives aimed at broadening the revenue collection base amid claims that a lot of business operators in the country were not fully paying taxes.