Senegal raises its personal income tax shield to 43%

Ensuring greater social justice in the distribution of the tax burden" is one of the objectives pursued by the Amending Finance Law (LFR) for the year 2022. Thus, with­out departing from the tradition of finance laws, it has made several changes to the General Tax Code (CGI).

The scope of the changes has not spared the provisions applicable to personal income tax (IRPP). Indeed, until then placed in what could be described as a stable regime, the IRPP has undergone major changes with the advent of the finance law.

Although these are partly favourable to the taxpayer in some regards, including the revision of the cap on the exemption of health insurance premiums, it must be rec­ognised that, for the most part, the changes introduced have resulted in an upward revision of the IRPP, including the increase in the tax shield.

Indeed, since the advent of Law No. 2012-31 of 31 December 2012 on the General Tax Code, the progressive scale of income tax had remained constant and capped at 40%.

But with the 2022 LFR, this scale has been revised upwards, by adding a new tax bracket at a rate of 43% for annual net taxable income above XOF 50 million, or EUR 76,225.

At the same time, the tax shield, which is a bulwark to avoid a confiscatory level of levies and to combat the risk of expatriation of wealthy taxpayers, is revised upwards and increased to 43%.

Therefore, beyond the increase in the tax burden that this major reform has brought about, the main question that it has not failed to raise is the effective date of applica­tion of this new bracket of the progressive scale. Legally, the law n°2021-21 of 2 March 2021, fixing the rules of applicability of the laws and administrative acts, clearly stipu­lates that these texts come into force one clear day after their publication in the official journal (OJ). On this basis, it can be noted that the 2022 LFR published in the OJ on 27 May 2022 came into force on 28 May 2022.

Therefore, for the tax on salaries and wages, subject to an annual declaration regime, the application of the new tax bracket as of May 2022 raises difficulties if we know that the salaries paid by the employers in 2022 are to be declared at the latest on 31 Janu­ary 2023. Thus, for the taxation of wages and salaries, the application of the new 43% bracket as of the above-mentioned date creates a distortion and an inconsistency with respect to the method of determination of this tax, which is essentially annual, and which is carried out by means of monthly withholding.

Maintaining this date would force employers to reconsider the monthly deductions made throughout the year 2022 and to calculate the annual tax actually due by apply­ing the two shields (the old and the new) proportionally to the two periods over which they would legally apply based on the rules of applicability of the laws mentioned above. For this reason, taxpayers were legitimately expecting a postponement of its application until January 2023.

Unfortunately, the Tax Authority has decided otherwise by choosing to increase its tax revenues, by deciding for the "retroactivity" of the new 43% bracket for all personal income, including salaries earned in 2022 from 1 January 2022. This is likely to penalise the beneficiaries of "large salaries or incomes" and to force companies to regularise the withholding of taxes on salaries of more than XOF 50 million (EUR 76,225) per year relating to the 2022 fiscal year.

Would the Senegalese Tax Authority have sacrificed the rules for the application of the law over time, even if it is a tax law, for the benefit of increasing tax revenues from the beneficiaries of "big salaries or incomes"?

Recently, on January 31, 2023, the Senegalese Minister of Finance stated that personal income is calculated on an annual basis, and that this new tax shield will therefore be applied to income received in 2022.

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