Togo: VAT - reforms that are costly for business

The VAT exemption regime in Togo, designed to facilitate the operations of certain entities (international organizations, embassies, etc.), has become a complex and costly process for businesses. 

1. The VAT exemption mechanism 

An entity exempt from VAT should be able to purchase goods or services without being charged VAT. However, in Togo, the law requires these entities to request a letter or certificate of exemption from the tax authorities (Office Togolais des Recettes – OTR), without which the exemption is not recognized (Art. 542 of the Tax Procedures Book – LPF). In addition, after paying without VAT, the exempt entity has three months to have the OTR affix an exemption stamp to its invoice and then send it to the supplier so that the latter can secure its position with the tax authorities.  

However, exempt entities are often large international institutions that the supplier cannot easily compel to comply with these OTR requirements. These include the West African Development Bank (BOAD), the ECOWAS Fund, the BCEAO, the embassies of the United States, France, etc., the African and Malagasy School of Architecture and Urban Planning (EAMAU), the headquarters of the ECOBANK Group (ETI), the delegations of the World Bank, the UNDP, etc.  

However, if the entity does not obtain the stamp within three months, it risks losing its exemption. Unlike nullity, forfeiture does not, in principle, have retroactive effect. The OTR is nevertheless claiming VAT retroactively, not from the exempt entity, but from the supplier. As a result, after legally invoicing without tax and declaring the transaction as exempt at a time when this exemption was perfectly valid, the supplier finds itself exposed to a tax adjustment several months or years later.  

2. The issue of the VAT deduction prorata 

Normally, companies can only deduct VAT on their taxable transactions. To calculate the deduction prorata, the taxable turnover is placed in the numerator and the total turnover in the denominator (Art. 198 et seq. of the General Tax Code – CGI).  

However, in Togo, the numerator now includes “taxable and actually taxed turnover” instead of just “taxable turnover.” This change reduces the pro rata deduction by excluding transactions with exempt entities from the right to deduct.  

As a result, the reform unfairly places the burden of the “tax expenditure” that the government has granted to exempt entities on the supplier.  

In conclusion, it is regrettable that measures intended to support the Togolese economy ultimately create administrative burdens, transfer the tax risk to suppliers, and unfairly increase the tax burden on businesses.