The 2019 Budget Bills for Madagascar

Posted on 13/10/26 by new_mdg in category Taxation

The bill dated 24 October 2018, establishes the 2019 Finance Act applicable to Madagascar.

Various “priorities” have been outlined in this bill, ranging from social to economic issues. However, the broad outlook for 2019 in Madagascar offers renewed hope for the country’s development. The added value that will be generated by these measures is expected to increase revenues for economic actors and resources for the Malagasy government.

HIGHLIGHTS OF THE 2019 BUDGET BILL

The main changes to the tax provisions for 2019 include the adjustment of the thresholds for liability for Income Tax (IR), Corporate Synthetic Tax (IS), and Value-Added Tax (VAT); the limitation of the income tax exemption for certain businesses; and the amendment of the provisions regarding VAT credit refunds.

Furthermore, the allowance of non-refundable VAT credits as an IR deduction and the application of a tax reduction under the corporate income tax (IS) regime for certain taxpayers constitute tax incentives.

AMENDMENTS TO THE 2019 FINANCE BILL

  • Thresholds for Income Tax and VAT Liability (Articles 01.01.02 and 01.02.02): Businesses with annual revenue exceeding 200,000,000 (two hundred million) Ariary are subject to income tax and VAT; for the year 2018, the threshold was 100,000,000 (one hundred million) Ariary. Opting into this actual income tax regime is possible with the approval of the tax case management department. Consequently, businesses with revenue of less than 200,000,000 (two hundred million) Ariary are subject to corporate income tax.
  • Income Tax Exemption (Art. 01.01.03_6°): Certain criteria must be met for income earned by nonprofit organizations or associations to be exempt. These include the non-distribution of profits among members and compliance with a non-competition clause regarding other entities providing the same services.
  • Deduction from the income tax base (Art. 01.01.10_18°): A VAT credit for which the right to a refund has expired (VAT credit refund applications filed after the prescribed deadline, i.e., more than three months after the filing deadline for the relevant VAT return) or that has been rejected, subject to expenses necessary for the normal operation of the business, may be treated as a deductible expense.
  • Corporate Synthetic Tax reduction (Art. 01.02.05 bis, para. 2): In addition to the 2% reduction on the amount of purchases of goods and equipment supported by invoices compliant with tax regulations, a 1% tax reduction is applied to the amount of sales covered by compliant invoices for primary producers, which primarily include mining and forestry operators.
  • Basis for calculating corporate Synthetic Tax on Rental Income (Art. 01.02.06): The corporate income tax on rental income for individuals under the downgraded tax regime (who have transitioned from the individual income tax regime to the lower-tier corporate income tax regime) is based on the most recent revenue. In the event of reclassification, the corporate income tax is based on the taxes due for the previous year.
  • Accounting for entities subject to corporate Synthetic Tax(Art. 01.02.07): Maintaining accounting records in accordance with the Minimum Cash Basis System (SMT) and the 2005 General Chart of Accounts (PCG) is mandatory for entities subject to corporate income tax with annual revenue between 100,000,000 (one hundred million) Ariary and 200,000,000 (two hundred million) Ariary, while maintaining a journal of receipts and expenditures remains mandatory for those with annual revenue of less than 100,000,000 (one hundred million) Ariary.
  • Change in tax regime (Art. 01.02.08 bis): As with the transition from the 2017 Finance Act to the 2018 Finance Act, a declaration of change in tax regime must be filed with the tax office before the end of the fiscal year if it is determined that the tax liability threshold has been exceeded during the fiscal year.
  • VAT credit refund (Art. 06.01.24): The draft law clearly defines export revenue as consisting of sales abroad or between free-zone enterprises that “comply with export formalities, particularly the obligation to repatriate foreign currency.” A VAT credit claim not filed within three months of the due date may be treated as an expense for the business. The same applies to a rejected VAT credit, in accordance with the relevant implementing regulations.

Read the article outlining the 2019 Finance Act in Madagascar, written by the Madagascar Services team.