Faith Ngwenya Technical and Standards Executive fngwenya@saipa.co.za

1. Faith Ngwenya Technical and Standards Executive fngwenya@saipa.co.za

2. The Tax Implications of Implementing IFRS • Harmonisation to International Financial Reporting standards 8 years on • General Tax implications in Africa • PWC study

3. Income Tax vs IFRS • Income Tax Acts tend to be jurisdiction specific whilst the reporting frameworks is based on International Financial Reporting Standards • Recognition and measurement requirements of IFRS are a major cause of the disparity between Accounting income and Taxable income • Quasi-dependent system of the profit derived using IFRS principles with the Tax related adjustments lead to the dreaded topic of Deferred Tax • SMEs find compliance with IFRS and to a certain extent IFRS for SME’s a challenge due to the Tax implications

4. Areas causing differences in IFRS and Tax • Income tax definitions vs IFRS recognition and measurement • IFRS assumptions vs Income tax pronouncements • Cash basis vs accruals basis • Recognition Issues such as whether the imputed interest on credit sales would be considered as sales or interest income? Whether tax withholding needs to be done on imputed interest? • Classification Issues

5. Income Tax vs IFRS • Measurement Issues in terms of whether notional gains and losses accounted under IFRS would be considered for tax treatment? • The point of recognition as to whether the services contract would be taxed only upon completion or at the point of accrual? • Indirect tax levies impact on account of IFRS characterisation / point of recognition?

6. Income Tax and IFRS • Transfer Pricing impact on how would the comparables be selected for Transfer Pricing analysis – whether IFRS accounts can be comparable • The fair value accounting for non-depreciable assets

7. COUNTRIES THAT HAVE ADOPTED IFRS IN AFRICA Algeria Botswana Ghana Kenya Lybia Malawi Mauritius Morrocco Mozambique Namibia Nigeria South Africa Swaziland Tanzania Uganda Zambia Zimbabwe

8. Areas that were compared in the countries that have adopted IFRS • Is IFRS required or permitted for listed companies? • Which Version of IFRS • Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules? • Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • Plans for converging

9. Algeria • IFRS required or permitted for listed companies? • Required for consolidated and standalone/separate financial statements • Version of IFRS • IFRS as adopted locally. With some differences between locally adopted IFRS and IASB IFRS • A lot of points are not treated in the Algerian system while the IFRS deals with more complete issues within the text. • Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules? • No • Rules for statutory filings

10. Algeria continued • Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • IFRS or IFRS for SMEs is required for consolidated and standalone/separate financial statements. • Version of IFRS • IFRS and IFRS for SMEs as adopted locally. • In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans • Plans for converging • Not applicable. IFRS and IFRS for SMEs are already adopted from 2010.

11. Botswana Version of IFRS • IFRS as published by the IASB Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • IFRS is required for with turnover in excess of BWP 10 million and total assets in excess of BWP 5 million. IFRS for SMEs is permitted for companies which are not public interest entities Version of IFRS • IFRS or IFRS for SMEs as published by the IASB • The Botswana Institute of Chartered Accountants is in the process of developing an Accounting Framework for Small and Medium Enterprises. This proposed compliance framework is aligned to the Botswana income tax regime, and would be voluntarily adopted by entities below the threshold which requires IFRS compliance.

12. Botswana continued In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans Other expected changes • The Financial Reporting Act recently established the Botswana Accounting Oversight Board, which is tasked with reviewing the annual financial statements of all public interest entities as defined and will also regulate auditors of such entities. Type of tax regime • Quasi-dependent: Taxable profit is principally based on the legal entity statutory accounts, with a number of adjustments provided in the tax law. Most “fair value accounting” adjustments under IAS 16, IAS 19, IAS 39, IAS 40, IFRS 2, IFRS 9, etc. are reversed for income tax purposes. Plans for IFRS converging as the basis of tax reporting • The local tax authorities have not announced any adoption or convergence plans of tax reporting to IFRS or IFRS for SMEs.

13. Ghana Version of IFRS • IFRS or IFRS for SMEs as published by the IASB In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans Plans for converging • All public interest entities including banks and listed companies on the Ghana Stock Exchange were made to comply with IFRS effective January 1, 2007. • All other entities can voluntary adopt IFRS. The plan of the Institute of Charted Accountants of Ghana (ICAG) is for all Public Interest Entities to adopt IFRS no later than December 31, 2012 and all other SMEs to adopt IFRS as well, no later than December 31, 2013.

14. Ghana continued T Type of tax regime • Dependent. Taxable profit is based on the legal entity statutory accounts, with only adjustments to determine taxable profits. Plans for IFRS converging as the basis of tax reporting • All public interest entities including banks and listed companies on the Ghana Stock Exchange were made to comply with IFRS effective January 1, 2007. • It is mandatory for all insurance companies licensed in Ghana to adopt the IFRS framework for reporting no later than December 31, 2011. • All other entities can voluntary adopt IFRS. The plan of the Institute of Charted Accountants of Ghana (ICAG) is for all Public Interest Entities to adopt IFRS no later than December 31, 2012 and all other SMEs to adopt IFRS as well, no later than December 31, 2013.

15. South Africa Version of IFRS • IFRS as published by the IASB Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules? • No • Rules for statutory filings Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • IFRS and IFRS for SMEs are permitted for consolidated and standalone/separate financial statements. IFRS for SMEs may be applied by all companies except listed public and state-owned companies. Version of IFRS • IFRS or IFRS for SMEs as published by the IASB

16. South Africa In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans Plans for converging • Not applicable Other expected changes • Not applicable Type of tax regime • Quasi-dependent. Taxable profit is principally based on the legal entity statutory accounts, with a number of adjustments provided in the tax law. Plans for IFRS converging as the basis of tax reporting • The local tax authorities have not announced any adoption or convergence plans of tax reporting to IFRS or IFRS for SMEs.

17. Zambia IFRS required or permitted for listed companies? • Required for consolidated and standalone/separate financial statements Version of IFRS • IFRS as published by the IASB Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules? • No • Rules for statutory filings Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • IFRS is required for consolidated and standalone/separate financial statements. IFRS for SMEs is in the process of implementation and a country specific version is being developed. Version of IFRS • IFRS as published by the IASB

18. Zambia continued In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans Plans for converging • Adoption of IFRS for SMEs is currently being discussed. Type of tax regime • Quasi-dependent. Taxable profit is principally based on the legal entity statutory accounts, with a number of adjustments provided in the tax law. Plans for IFRS converging as the basis of tax reporting • Not applicable. IFRS is already required as the basis for tax reporting.

19. Zimbabwe Version of IFRS • IFRS automatically apply when issued by the IASB, and the effective dates are the same. Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules? • No • Rules for statutory filings Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory filings? • IFRS or IFRS for SMEs is required for consolidated and standalone/separate financial statements. IFRS for SMEs is applicable for entities that meet the criteria for SMEs. Version of IFRS • IFRS or IFRS for SMEs as published by the IASB (See above)

20. Zimbabwe In addition to local GAAP statutory financial statements, are there any other regulatory financial statement requirements that permit or require the use of IFRS? • No • IFRS conversion plans Plans for converging • Not applicable. IFRS for SMEs application is allowed effective from January 1, 2011. Type of tax regime • Quasi-dependent. Taxable profit is principally based on the legal entity statutory accounts, with a number of adjustments provided in the tax law. Plans for IFRS converging as the basis of tax reporting • The local tax authorities have not announced any adoption or convergence plans of tax reporting to IFRS or IFRS for SMEs

21. Countries that have not adopted in Africa • Angola • Cameroon • Chad • Cote D Ivoire • Democratic Republic of Congo • Egypt • Equatorial Guinea • Gabon • Guinea Conakry • Madagascar • Republic of Congo • Senegal • Tunisia

22. Angola Plans for converging • Financial reporting and accounting requirements are set by law. There are no independent accounting, auditing or standard setting bodies in Angola. The preamble to the accounting law recognizes that convergence with IAS is a long term objective, but no timetable or current actions in that regard at present. Tax information Type of tax regime • Quasi-dependent: Taxable profit is principally based on the legal entity statutory accounts, with a number of adjustments provided in the tax law. Plans for IFRS converging as the basis of tax reporting • The local tax authorities have not announced any adoption or convergence plans of tax reporting to IFRS or IFRS for SMEs.

23. Conclusion • IFRS adoption has grown significantly in the last five years • IFRS for SMEs is also being seen as the alternative for Small and Medium sized entities; however its adoption is somewhat slower than full IFRS • There is generally little or no convergence between countries tax systems and IFRS

24. Thank you