In this interview, the tax inspector and head of the legislation department at the Directorate General of Taxes (DGI), Idrissa Ouédraogo, talks about the new tax on financial activities (TAF). It lifts the veil on the persons and transactions subject to this tax as well as those who are excluded from it, the applicable rate and the basis of the TAF.

Sidwaya (S): Article 28 of the 2021 Finance Law introduced a new tax on financial activities for the benefit of the state budget. Why this new tax?

Idrissa Ouédraogo (I.O): Of the 8 countries of the Union, 6 have adopted a specific taxation on the operations of financial and banking institutions. Only Burkina Faso and Guinea Bissau did not have this tax on financial activities (TAF). Indeed, from the analysis of the various legislations of the WAEMU area , it appears that this specific taxation allows an efficient taxation of the sector and a resolution of the difficulties of VAT taxation of certain transactions in the sector. The objective of the establishment of the TAF is to go in the same direction as the other WAEMU member countries, by bringing together the tax rules relating to the taxation of financial activities in the WAEMU area . Burkina Faso was the only French-speaking country in the Community area that did not have in its system a specific taxation for banking and financial activities. The reform also aims to increase tax revenues.

S: In easy French, what is TAF?

I.O: The TAF can be perceived as a specific tax applicable to banking and financial activities. It is invoiced to the customer on the gross amount of interest, agios, overdraft products, commissions or other remuneration. In other words, the tax is paid by the person receiving a service of a banking or financial nature and for whom remuneration is due. Like VAT, it is collected by the taxpayer from his customers and then returned to the State budget.

S: How much tax revenue does the DGI intend to raise under the TAF in 2021?

I.O: An estimate was made from a sample of people subject to the obligation to collect this tax. The simulations show that the implementation of the TAF instead of VAT would provide additional gains estimated at about 6 billion FCFA, for the benefit of the State budget. that is what is apparent from the explanatory memorandum to the law. This is to be welcomed in a context where the State needs resources to finance its economic and social development and especially to face present and crucial challenges, including the security and health crisis.

S: What is the TAF rate?

I.O: The law provides for two rates. A rate of 17% which can be considered as that of common law and a reduced rate of 15% applicable exclusively to interbank refinancing and companies covered by the regime of normal real profit of taxation (RNI). This is a favour established for the benefit of banks in the context of their refinancing and natural and legal persons covered by the RNI to whom the TAF is invoiced at a reduced rate of 15% instead of 17%.

S: Which taxpayers are subject to this new tax?

I.O: The law has limitedly mentioned the people who must collect this new tax for the Public Treasury. These are banks and financial institutions authorized in Burkina Faso, natural or legal persons carrying out financial intermediation, foreign exchange operators and natural or legal persons carrying out money transfer operations.

These persons are obliged to charge the TAF for transactions falling within the scope of this tax to all their customers, subject to the exemptions provided for by law.

The fact remains, of course, that persons other than those mentioned above are not entitled to invoice the TAF.

S: What type of financial transactions does it apply to?

I.O: To be taxable at the TAF, the transaction must be related to a banking or financial activity and in general to the trade in money and securities, with the exception of leasing transactions. The most common products that may arise from the implementation of these operations are the following:

S: Who are the people and operations excluded from this news?

I.O: Under the law, exemptions are provided for in particular for the benefit of the agricultural sector, microfinance, the State and local authorities, the  Central Bank of West African States (BCEAO), loans granted to natural persons for the construction or acquisition of the first house or the first apartment. The products exempt from the TAF are as follows:

S: Does the TAF replace VAT in the financial and banking sector?

I.O: The TAF replaces the VAT applicable to transactions related to banking, financial and generally to the trade in securities and money, with the exception of leasing transactions. In this respect, the law provides that banking or financial transactions subject to the TAF are exempt from VAT. This prevents the collection of VAT and TAF on the same transaction. However, I would be remiss if I did not point out that VAT does not disappear from this sector. VAT remains payable by taxpayers in the banking and financial sector on transactions carried out, excluded from the scope of the TAF but subject to VAT. By way of illustration, a bank that leases a commercial premises, must charge VAT on the rent because the commercial lease does not fall under the banking or financial activity. A financial institution that is in leasing, will have to charge VAT on its rents.

S: It seems that the TAF is not to the liking of banks and financial institutions. What is the situation exactly?

I.O: You bring me information. I cannot answer this question because I am not aware that this tax is not to the liking of banks and financial institutions. I do not think that banks and financial institutions can express disapproval of a law of the republic. I am not aware of any refusal on their part to apply the law.

S: Has the DGI taken the necessary measures for the effective application of this tax?

I.O: The DGI's mission is to ensure the application of the tax law, has had exchanges with taxpayers concerned. The day after this promulgation, the Director General of Taxes, sent correspondence to certain persons, those concerned, in order to inform them of the entry into force of this tax from 1 January 2021 and invite them to seize his services for any need for clarification. In addition, a press release was issued on the media. As of today, the exchanges are still ongoing. At the level of the administration, arrangements shall be made to enable this tax to be applied effectively.

Interview conducted by

Mahmadi SEBOGO