July 2022

  • China
    • China’s economy expected to improve amid supportive policies in H2: report

      China's economy is expected to gradually overcome the negative impacts of the epidemic in the second half of this year, with economic indicators showing improvement amid a raft of supportive policies, according to a report by the Bank of China.

      Noting that risks including rising global inflation, geopolitical tensions and volatile international financial markets might continue to weigh on the economic outlook, the report said domestic demand will play a key role in stabilizing the country's growth during the second half of the year.

      It added that China's economic fundamentals and potential for long-term growth remain unchanged.

      Despite the challenges, the country's employment has remained stable and the price rise has been kept within a moderate range, leaving more room for authorities to maneuver macro policies, according to the report.

      Going ahead, the report has suggested leveraging fiscal and monetary policies further to help enterprises tide over difficulties, and expand effective investment and stabilize growth.

      More efforts should be made to spur consumption, promote the steady development of the real estate sector, and foster long-term competitiveness through technological upgrading and innovation, the report said.

      Reference: Xinhua
    • China’s Hainan sees trade grow with RCEP members

      South China's island province of Hainan saw its trade with members of the Regional Comprehensive Economic Partnership (RCEP) grow rapidly in the first five months of this year, local authorities said.

      Exports and imports of goods between Hainan with RCEP member states reached 25.79 billion yuan (about 3.85 billion U.S. dollars) during the period, up 44.1 percent year on year, according to a media briefing held Tuesday by the information office of the Hainan provincial government.

      Foreign trade in services between the province with RCEP member countries exceeded 2.7 billion yuan, accounting for 21.64 percent of the total imports and exports of services in Hainan.

      From January to May, Hainan has attracted 47 million U.S. dollars of investment from RCEP member states and established 79 new foreign-funded enterprises mainly from countries including Australia, Japan, the Republic of Korea and Thailand.

      As one of the country's major opening-up measures in the new era, China aims to build the whole of Hainan Island into a globally influential and high-level free trade port by the middle of the century.

      An increasing number of foreign-funded companies have shown interest in the policies related to the Hainan free trade port, and the province has made positive results in seizing the opportunities brought by the implementation of RCEP and promoting the two-way investment, said Li Xie, deputy head of the provincial department of commerce.

      Source: Xinhua

    • GAC Waives Administrative Penalties on Importers and Exporters Voluntarily Disclosing Tax-related Violations

      The General Administration of Customs ("GAC") released on July 1, 2022 the Announcement of Waiving Administrative Penalties on Voluntary Disclosure of Tax-related Violations, to be effective from July 1, 2022 until December 31, 2023.

      According to the Announcement, importers and exporters will be waived from administrative penalties if they:

      (1) make a voluntary disclosure of tax-related violations to the customs within six months from the date of the violations; or

      (2) make a voluntary disclosure of tax-related violations to the customs after six months but within one year from the date of the violations, provided that the evaded or underpaid amount of taxes account for less than 30% of the taxes payable, or the evaded or underpaid amount of taxes is less than 1 million yuan.

    • Online shopping spree mirrors consumption recovery

      As the June 18 shopping festival has come to an end, Chinese consumers have set off a mid-year consumption boom.

      During the festival, the total amount of orders placed on JD.com, China's e-commerce behemoth, hit a record high of 379.3 billion yuan (about 56.7 billion U.S. dollars). The total hours of livestreaming on the e-commerce platform Douyin, the Chinese version of TikTok, reached 40.45 million hours, which helped the sales of its online shopping mall surge 514 percent year on year.

      Targeting some small and medium-sized enterprises facing the pressure of rising costs, multiple e-commerce platforms launched a slew of supportive policies during the shopping spree. JD.com provided the enterprises with a variety of financial services, including deferred repayment as well as reduction or exemption of interests and fees.

      Douyin invested 2.5 billion yuan worth of subsidies to support those businesses affected by the COVID-19 epidemic. Pinduoduo bailed out some enterprises through logistics subsidies and other measures. Those platforms also benefited consumers during the event. JD.com issued nearly 1 billion yuan worth of coupons in Beijing, Shenzhen, Chengdu, Changsha and other cities.

      In addition to the e-commerce platforms, local authorities across the country have also adopted similar policies to further promote consumption.

      From May to August, the southern metropolis of Shenzhen will offer the consumers who buy eligible household appliances subsidies worth 15 percent of the sales price. Each consumer can receive a subsidy of up to 2,000 yuan in total. The provinces with abundant tourism resources, including Sichuan, Hainan and Fujian, have been taking measures such as the issue of subsidies and coupons to boost consumption.

      Source: Xinhua

    • Tax Authority announced on the administration of stamp tax collection to make the declaration term clear

      We remind you that the Stamp Duty Law of the People's Republic of China, adopted at the 29th Session of the Standing Committee of the 13th National People's Congress of the People's Republic of China on June 10, 2021, has became effective from July 1, 2022.

      Tax authority of Shanghai, Beijing and Shenzhen have make announcements on the administration of stamp tax collection respectively to make the declaration term clear.

      Shanghai Tax Authority:

      1. Stamp tax of taxable contracts shall be declared and paid quarterly. Taxpayers who do not often file taxable contracts can choose to declare and pay based on each transaction.
      2. Stamp tax of taxable documents for transferring property rights shall be declared and paid based on each transaction. Taxpayers who have to often file such documents and feel difficulty to declare based on transaction, can choose to declare and pay on a quarterly basis.
      3. Stamp tax of taxable business books shall be declared and paid on a yearly basis.
      4. Stamp tax for overseas enterprises or individuals shall be paid based on each transaction. Taxpayers who have difficulty can choose to declare and pay on a yearly basis.

      Beijing Tax Authority:

      1. Stamp tax of taxable contracts and documents of transferring property rights shall be declared and paid based on each transaction; Taxpayers who are enterprises can choose to declare and pay on a quarterly basis.
      2. Stamp tax of taxable business books shall be declared and paid on a yearly basis.
      3. Stamp tax for overseas enterprises or individuals shall be paid based on each transaction. Taxpayers who have difficulty can choose to declare and pay on a yearly basis.

      Shenzhen Tax Authority:

      1. Taxpayers who are enterprises shall declare and pay the stamp duty of taxable contracts and documents of transferring property rights on a quarterly basis.
      2. Stamp tax of taxable business books shall be declared and paid on a yearly basis.
      3. If the declaration cannot be fulfilled within a fixed period, the stamp duty can be declared and paid based on each transaction;

      d.         Taxpayers who are individuals shall declare and pay the stamp duty based on each transaction.

    • MOF and STA Clarify Issues on Implementation of Preferential Stamp Duty Policies and the Catalog of Effective Rules

      The Ministry of Finance ("MOF") and the State Taxation Administration ("STA") released on June 29, 2022 the No.22 Announcement and the No.23 Announcement in 2022, clarifying some issues on the implementation of the preferential stamp duty policies, as well as the issues on the transition to the relevant preferential policies after implementation of the stamp tax law.

      The No.22 Announcement clarified three types of documents that are excluded from the levy of the stamp duty, including effective legal documents issued by people's courts, arbitration documents issued by arbitral authorities, and the supervisory documents issued by supervisory organs; contracts, agreements or administrative documents prepared by people's governments at or above the county level or their subordinated departments for expropriation, recovery, compensation or relocation of real estates based on their administrative authority; or any proof document signed between a parent company and its branches or between branch companies for implementation of a plan.

    • China rolls out measures to spur automobile consumption, circulation

      China has unveiled a slew of measures to invigorate automobile circulation and boost auto consumption, as multiple factors have weighed heavily on the industry.

      The Ministry of Commerce and 16 other government departments have detailed 12 specific measures in six aspects to inject impetus into the auto sector, Vice Minister of Commerce Sheng Qiuping announced at a press conference on Thursday.

      Steps have been initiated to build a unified national market for automobiles that is rule-based and features interconnectivity, with efforts to remove local protectionism in the new-energy vehicle (NEV) market and promote NEV sales in rural areas.

      Efforts will be made to bolster the large-scale development of the used car market. For used non-commercial light-duty vehicles, restrictions on the cross-regional transfer of those vehicles that meet the national stage V emission standard will be lifted nationwide starting from August 1.

      Such measures aim to promote efficient automobile circulation in the market and facilitate the cross-regional operation of related enterprises.

      More parking facilities will be built in cities and more battery charging facilities will be added in parking lots, gas stations and expressway service areas, among other spots, to meet NEVs' charging demand, the vice minister noted.

      Measures will also be taken to boost the green and low-carbon transition of the auto industry, with efforts to stimulate NEVs consumption and improve the recycling system for scrapped vehicles.

      The move to unleash the auto industry's potential is part of China's policies aimed at maintaining economic stability, Sheng said, noting that auto sales play a vital role in boosting consumption and stabilizing economic growth.

      Source: Xinhua

  • United Arab Emirates
    • Dubai records 25% growth in new business licences in first half of 2022 compared to H1 2021

      Dubai issued 45,653 new business licences in the first half (H1) of 2022, a growth of 25% compared to H1 2021 when 36,647 licenses were issued. The numbers reaffirm the success of the government's innovative new strategic approaches and policy amendments that have revitalised the economy and stimulated a strong flow of local and foreign investment, enabling the emirate to accelerate the pace of its sustainable economic growth and diversification.

      His Excellency Helal Saeed Al Marri, Director General of Dubai’s Department of Economy and Tourism, said: “The latest figures released by the Business Registration and Licensing (BRL) sector at the Department of Economy and Tourism (DET) in Dubai underline the success of measures taken to ensure business continuity and provide the option of full ownership to foreign investors, both significant steps that support the vision and directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, to attract foreign direct investment (FDI) into vital sectors. These measures have also enhanced Dubai’s growth-friendly and transparent investment environment, marked by exceptional ease of doing business and high levels of security and safety. The new data also reflects Dubai’s dynamic entrepreneurial landscape, its globally competitive offerings for businesses and the confidence that local, regional and global investors have in its growth prospects.”

      According to the BRL sector data, 55% of the new business licences issued during H1 of 2022 were professional and 45% were commercial. Bur Dubai accounted for the largest share with 31,604 of new licences issued, followed by Deira with 14,022 licences, and Hatta (27), while the top sub-regions were: Al Fahidi, Burj Khalifa, Al Marrar, Port Saeed, Dubai Investment Park 1, Naif, Al Quoz 3, Trade Centre 1, Al Barsha 1, and Jebel Ali Industrial 1.

      Among the legal forms of the new licences issued during H1 of 2022, Sole Establishment companies topped the list with 30%, followed by Civil Companies with 25%, and Limited Liability companies with 22%. The legal forms also included: One-Person Limited Liability Companies, Branches of companies based in other emirates; Branches of Foreign Companies; Branches of Free Zone Companies; Branches of GCC Companies, General Partnership Companies; Public Shareholding Companies; and Private Joint-Stock Companies.

      A total of 261,958 business registration and licensing transactions were completed in H1 2022, a growth of 33% compared to H1 2021, when total transactions reached 197,052. Additionally, the number of renewal transactions during the first half of 2022 reached 92,948, a growth of 22% compared to the first half of 2021, in which 75,950 transactions were recorded.

      The number of Initial Approvals reached 39,303, a growth of 54% compared to H1 of 2021 (25,491), while Trade Name Reservations reached 41,731, a growth of 32% compared to H1 of 2021 (31,693). Commercial Permits reached 5,805 permits in H1 2022.

      The BRL sector reported that 14,654 Instant Licences were issued during the first half of 2022. Through the Instant Licence, which is issued within five minutes on invest.dubai.ae platform, with the option to issue an electronic MOA and a virtual site for the first year only, the Department of Economy and Tourism aims to drive the sustainable economic development and competitiveness of Dubai.

    • Dubai Customs Authorities Postpone Entry into Force of Procedures for Cross-Border E-Commerce

      The Dubai Customs Authority (DCA) has published decision No. 04/2022 to postpone the implementation of the procedures for cross-border e-commerce following the request of businesses to allow them a period of time to develop and upgrade their electronic systems.

      The specific procedures for cross-border e-commerce were introduced by Notice No. 15/2021, with the aim of simplifying customs procedures and regulating the movement of goods through cross-border e-commerce channels. The entry into force of Notice No. 15/2021 was 1 January 2022.

      The DCA have decided to implement these procedures for cross-border e-commerce from 1 January 2023.

      Decision No. 04/2022 was published on the DCA's official website on 22 June 2022.

    • Dubai Chamber of Commerce member exports and re-exports exceed AED 129 billion in H1-2022

      The value of member exports and re-exports in the first half of 2022 amounted to AED 129.4 billion, marking a 17.8% increase compared to the same period last year. The number of certificates of origin issued in H1-2022 rose 8.9% y-o-y to exceed 357,000.

      The growth momentum reflects the Chamber’s ongoing efforts to expand and improve its services that are designed to facilitate Dubai’s trade with other markets and enhance the competitiveness of the private sector, as well as new initiatives launched under the new Dubai Chambers strategy.

      Commenting on the latest performance figures, HE Hamad Buamim, President & CEO of Dubai Chambers, described said Dubai International Chamber’s representative offices played a crucial role in supporting the growth of member exports as these offices identify high-potential trade opportunities in promising markets, in addition to Dubai Chamber of Commerce’s smart services and expanded efforts to promote Dubai as a preferred business hub in the global arena.

      He reiterated Dubai Chambers’ strong commitment to achieving the goals of the Dubai Foreign Trade Plan announced by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, which aims to boost Dubai’s foreign trade to AED 2 trillion by 2026, adding that newly launched initiatives such as Dubai Global are expected to fast track progress towards achieving this target.

      He added that 2022 is forecast to be a record and exceptional year for member companies trade performance as the three chambers operating under Dubai Chambers – Dubai Chamber of Commerce, Dubai International Chamber and Dubai Chamber of Digital Economy align their efforts and implement a focused approach to supporting Dubai’s business community and cementing its position as a global trade hub.

      Media Office

    • UAE to develop and launch advanced radar satellite constellation under new AED3 billion space sector fund

      ABU DHABI, 17th July, 2022 (WAM) -- Under the auspices of His Highness Sheikh Mohamed bin Zayed Al Nahyan, President of the UAE, and His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai UAE, the UAE Space Agency today announced a new AED3 billion national investment and development fund for the space sector, The National Space Fund.

      The Fund will support ground breaking new programmes launched to support international and Emirati companies co-operating in leading edge space sector engineering, sciences and research applications. The Fund’s first project to be launched to space will be a constellation of advanced remote sensing satellites using radar technologies to provide unparalleled imaging capabilities.

      Sarah bint Yousef Al Amiri, Minister of State for Public Education and Advanced Technology and Chairwoman of the UAE Space Agency, said: "A long-term plan and programme for the development of the Emirates’ space sector is in place to create economic opportunities, new jobs and help to fund global partnerships and new leaders in technology, space sciences and engineering here in the UAE. We are planning for a bright future filled with new challenges and openings for our young people – and this fund is precisely targeted at building opportunities for international co-operation in building Emirati enterprises."

      The Fund will actively encourage partnerships between international and local enterprises, providing them with incentives as a part of the UAE Space Agency’s Space Economic Zones Programme.

      Salem Al Qubaisi, Director General of the UAE Space Agency, said, "The National Space Fund will encourage global partnerships to establish themselves here in the Emirates, providing new and vital technology platforms and development to answer the needs of the UAE Space Programme and other global customers for vital innovation and technologies that answer the needs and possibilities of today’s world."

      The Fund’s first investment will be in the development and launch of a constellation of advanced imaging satellites for the Emirates, using the SAR (Synthetic Aperture Radar) technology. The constellation is to be named Sirb after the Arabic term for a flock of birds, and will address the critical need for better environmental and land usage monitoring, data collection and analysis to meet today’s global challenges.

      The planned satellites will be able to create highly detailed and complex radar ‘images’ of land use, ice cover, surface changes and characterisation, with a wide range of scientific, civil and commercial applications.

      Sarah Al Amiri commented, "SAR technology leapfrogs traditional imaging satellites, providing more powerful imaging using X-band radar technologies, allowing us to continue observations day and night, through fog and cloud cover as well as combining observations to create big data pictures simply not possible through conventional imaging. These small-scale satellites are more agile, faster to develop and more powerful – an indicator of the types of new generation systems that technology is now making possible."

      SAR technology combines the power of imaging satellites with cloud and ground penetrating capabilities that will open up applications from urban planning to archaeology and from weather prediction to atmospheric quality analysis and climate change mapping. Critically, the SAR radar-based technology can provide high-resolution images for remote sensing applications regardless of sunlight illumination and weather conditions.

      The six-year satellite development programme will see the first satellite launch in three years, a much faster time to launch than was possible using traditional earth observation satellite design principles. The Sirb satellites will be built through a number of partnerships between the Emirati public and private sector together with international players, with submissions being opened for a range of system integration, development and subsystem construction opportunities as part of the constellation development, launch, operation and commercialisation plan.

      As well as addressing critical human needs for more wide-ranging data, the Sirb constellation provides a private sector opportunity that bridges the gap between the Emirates Mars Mission and the upcoming Beyond Mars Mission to Venus and the Main Asteroid Belt, due to launch in 2028.


    • UAE Extends Reporting Deadline Under AEOI-CRS and FATCA

      According to an update of 25 July 2022, published by the Ministry of Finance of the United Arab Emirates, the deadline to submit the Reporting Financial Institutions (RFI) in accordance with the requirements of the Automatic Exchange of Information CRS (AEOI-CRS) based on the OECD Automatic Exchange of Information Agreement (2014), and the United Arab Emirates - United States FATCA Model 1B Agreement (2015) has been further extended to 15 August 2022. Previously, the deadline had been extended to 20 July 2022.

  • Bulgaria
    • Bulgaria Increases VAT Registration Threshold

      The National Assembly decided to increase the minimum threshold of the taxable annual turnover for VAT registration from BGN 50,000 to BGN 100,000

      The National Assembly decided to increase the minimum threshold of the taxable annual turnover for VAT registration from BGN 50,000 to BGN 100,000. The Parliament adopted at second reading amendments to the Value Added Tax Act, submitted by Martin Dimitrov from Democratic Bulgaria and a group of MPs.

      The National Assembly decided that the amendments to the Act would enter into force on the first day of the month following the entry into force of a decision of the Council of the European Union authorising Bulgaria to introduce a special measure derogating from the common system of the value added tax, but not before 1 January 2023. “The increase of the threshold also affects self‑employed persons”, Martin Dimitrov explained.

      The Parliament decided that from 1 January 2023, parents will be able to use a sick day to care for healthy children up to the age of 12, that have been quarantined. The National Assembly adopted at first and second reading the amendments to the Health Act, submitted by Silvi Kirilov (There is Such a People) and a group of MPs, including MPs from We Continue the Change.

      The bill aims to fill the existing legislative gap in the Health Act, respectively in the Labour Code and the Social Security Code, in terms of temporary incapacity to care for a healthy child put under quarantine. The sponsors note that under the legislation “childcare facility” refers to children up to the age of 7. Thus, schools do not fall within the scope, which makes it impossible for parents of children up to 12 years of age to use sick leave for healthy children put under quarantine. The sponsors explained that according to the Child Protection Act, children cannot be left unattended until the age of 12. It is therefore proposed to include schools in the additional provisions of the Health Act.

      The National Assembly adopted at first reading amendments to the Judiciary System Act, submitted by the Council of Ministers. The draft act provides that the European Delegated Prosecutors shall be assigned to an independent organisational structure of the Prosecutor's Office of the Republic of Bulgaria. For this purpose, an act of the Council of Ministers provides the Supreme Judicial Council with an appropriate building for providing independent structures and administration, and the necessary funds will be provided from the budget of the judiciary. It is proposed that the administrative functions of a director be carried out by a European Delegated Prosecutor, authorised by the European Public Prosecutor's Office, whose administrative functions shall be limited to the recruitment of employees and the operation with funds.

      The bill specifies the rules for the appointment of candidates from Bulgaria to the European Union Agency for Criminal Justice Cooperation (Eurojust) and establishes guarantees for a clear and transparent procedure.

      Changes to the Criminal Procedure Code and the Special Intelligence Means Act further develop the procedures for requesting, authorizing and applying special intelligence means from the European Prosecutor and the European Delegated Prosecutors, as well as the use of the data and substantive evidence collected through them.

      The Parliament adopted at first reading amendments to the Gambling Act proposed by Lyubomir Karimanski, Iva Miteva and Andrey Mihaylov from There is Such a People. The amendments broaden the scope of gambling games organized by the state-owned enterprise DP Bulgarian Sports Totalizator to include games with betting on random events and betting related to fact‑knowledge. “The expansion of the portfolio will lead to more funds for physical education, sports and culture, as well as for maintenance, repair or construction of new sports facilities in state and municipal schools”, the sponsors said in their motives. According to them, the change will also lead to the optimisation of the financial performance of the state-owned enterprise.

      The bill regulates that the organization of gambling games by the Totalizator will be carried out through betting facilities and through self-service devices. The amendments provide that the total number of facilities may not exceed 3,000 on the territory of the country.



      La Banca Nazionale Bulgara (BNB) ha pubblicato i dati relativi agli investimenti diretti esteri (IDE) in Bulgaria. Questi hanno raggiunto gli 871.2 milioni di euro nel periodo compreso tra gennaio e maggio 2022, con un aumento del 177,6% (557,4 milioni di euro in valore nominale) rispetto allo stesso periodo del 2021.  La BNB ha calcolato, inoltre, come nel solo mese di maggio il flusso di investimenti sia stato positivo per 32.9 milioni di euro.

      Il capitale sociale per il periodo gennaio - maggio 2022 è in positivo per un ammontare di 88 milioni di euro, con un valore superiore pari a 359 milioni di euro rispetto a quello dello stesso periodo del 2021, quando era in negativo per 271 milioni di euro. Il reinvestimento dell'utile è anch'esso positivo per un valore pari a 826.8 milioni di euro.

      I maggiori flussi postivi netti di IDE in Bulgaria provengono dai Paesi Bassi (533 milioni di euro), Belgio (180.2 milioni) e Austria (114.3 milioni), mentre i maggiori flussi negativi netti sono verso il Lussemburgo (54 milioni di euro) e la Germania (50.3 milioni).

      Source: Confindustria Bulgaria

  • India
    • First Round of Negotiations On a Free Trade Agreement between the European Union and India

      The first round of EU-India FTA negotiations took place in New Delhi between 27 June and 1 July 2022, with parallel negotiations taking place on investment protection and geographical indications (GIs). The round took place in hybrid mode, with some sessions held entirely by videoconference, and all in-person sessions having additional colleagues joining by videoconference. During the round, the two sides discussed all the chapters to be included in the future FTA except for Trade and Sustainable Development, Institutional Provisions, Exceptions and Final Provisions. The negotiations were based on the 18 textual proposals submitted by the EU side. However, in the case of Trade Remedies, the Indian side had also tabled its own textual proposal. Additionally, the Indian side announced that it would table textual proposals across EU proposed chapters in advance of the next round, possibly including full alternative chapters. The second round of EU-India FTA negotiations will be held in Brussels from 3 to 7 October 2022.

      Details per negotiating area:

      Trade in Goods: The discussions covered all the articles of the EU-proposed text on Trade in Goods. The atmosphere was cordial and touched upon all sensitive topics of both sides. The discussions pointed at areas where a better understanding of each other’s policies and sensitivities is needed. Rules of Origin: The talks covered all the articles of the EU text proposal for Rules of Origin. Constructive discussions took place between the two sides with a view to identifying areas of convergence and of divergence. Customs and Trade Facilitation: The first round allowed the two sides to go through the whole EU text proposal for Customs and Trade Facilitation. The talks took place in a very good atmosphere. India indicated for each provision where there was common ground and where there would be a need for further deliberations. Sanitary and Phytosanitary Measures (SPS): The two sides worked on the basis of the EU proposed text for SPS. The session was devoted to explaining and clarifying the EU proposal. The Indian negotiator requested detailed clarification about the trade facilitation measures proposed in the chapter. Technical Barriers to Trade (TBT): The negotiations were conducted in a positive and constructive atmosphere. The EU negotiator presented the EU’s proposal for TBT and the two sides discussed all the article and annexes. Trade Remedies: The EU and Indian negotiators had a constructive discussion on the textual proposals on Trade Remedies submitted by the two sides and raised their initial concerns. Services and Investment: The EU negotiators explained in detail the full EU proposal on Services and Investment. India sought clarifications on many aspects of the EU approach and questioned some important elements thereof. Digital Trade: The EU negotiator presented in detail the EU’s proposal for Digital Trade and explained the rationale for each provision. The Indian side welcomed the overall EU text and commented on each provision. Government Procurement: Government procurement was discussed based on the EU draft text. The two sides covered more than half of the text and most of it was agreed, though important elements of the text remained bracketed. Intellectual Property (IPR): The EU and Indian negotiators started the discussions on IPR based on the EU text proposal. They had a first exchange to identify main areas of convergence and divergence. The detailed discussion of the provisions proposed by the EU covered the Sub-sections on copyright, trademarks and designs. Anticompetitive Conduct, Merger Control and Subsidies: The two sides held positive discussions based on the EU’s text proposal. They reached a general understanding of the articles related to anticompetitive conduct and merger control, and identified a few points where further reflection is required. The two sides also held discussions on the articles related to subsidies. State-Owned Enterprises: The two sides held a constructive dialogue on the content of the EU-proposed chapter on State-Owned Enterprises. Small and Medium-Sized Enterprises (SMEs): The EU negotiator gave a presentation of the EU SME policy. The two sides exchanged views on the SME Chapter based on the EU text proposal. Negotiators agreed to give presentations of their existing information-sharing tools and websites during the next round. Energy and Raw Materials: The EU and India negotiators had initial discussions of the EU’s proposed chapter on Energy and Raw Materials. The focus was on clarifying the EU proposal and promoting mutual understanding of each other’s respective priorities and challenges. Transparency: The talks were conducted in a positive atmosphere. The EU and Indian negotiators discussed all provisions of the EU’s proposed chapter on Transparency to gain a better understanding of each other’s sensitivities and concerns. Good Regulatory Practices: The negotiations were conducted in a positive atmosphere. The negotiators discussed all provisions of the EU’s proposed chapter for Good Regulatory Practices. Sustainable Food Systems (SFS): The two sides worked on the basis of the EU proposed text for SFS. The round was devoted to explaining and clarifying the EU proposal. Dispute Settlement: The EU and Indian negotiators had a detailed discussion on the EU's proposed text for Dispute Settlement. The two sides clarified a number of provisions and gained a better understanding of each other’s concerns.

      Source: policy.trade.ec.europa.eu

    • Exploring Leading Indian States for Investments

      Historically, the Indian states (operating as independent kingdoms or semi-autonomous units centuries ago) have been dubbed as the jewels of India's crown, or more aptly, its gilded feathers- allowing it to take flight through their individual thrusts and collective impact. Today, as the country continues to soar economically, its states, each basking in the glory of their own strengths and specialties, have been active participants in India's socio-economic growth.

      Perhaps on that account, shortly after foreign investors are keen to invest in the Indian growth story, they are posed with a much-harder question- in a land of opportunities and sectors as far and wide as its population and markets are diverse, what are some of the top states to invest in India?

      Albeit investing anyplace in India allows for a host of merits; for example, the states' competitive EODB rankings, investor-friendly policies, and ever-growing market and growth prospects, allow for a healthy competitive spirit among different states to push India's economic stature. However, there are several sector-specific advantages harbored by each individual region. In March this year, the government released data pertaining to FDI equity inflow received by various Indian states. In that order, listed below are some of the top performers as well as the reasons due to which they are popular investment destinations.


      During the period from January 2021 to December 2021, this state reported an FDI equity inflow amounting to a whopping $18,554.29 million. The key contributing sectors include:

      • Aerospace and defense
      • Automobile and auto components
      • Agri and food processing
      • Electronic System Design and Manufacturing

      In addition, Karnataka has come to be known as the booming hub of research and innovation in Asia. It is a top performer in State Startup Ranking 2021. Some of the major investors involve Cisco, Oracle, Saint-Gobain, etc. The state also contributes to 5.2% of India’s total exports and ranks 3rd in the Export Preparedness Index 2021.

      In light of the above, it is hardly surprising that Karnataka bears home to 400 Fortune 500 companies.


      Maharashtra, famously known as the ‘gateway of India’, is the second-most populous and 3rd largest state in India. It is known as the country’s commercial and industrial hub and is home to India’s one of India's most industrialized region, the Mumbai-Pune belt.

      Mumbai, Maharashtra’s capital city is known by multiple names, indicating the multitudes of opportunities this city has to offer. It is called the ‘City of Dreams’, perhaps as an ode to its economic prosperity and being home to Bollywood. Also known as ‘the Financial Capital of India’ because of its widespread financial clout and presence of stock exchanges and financial companies, Mumbai is one of the foremost destinations for incoming foreign investments.

      Tourism is a major sector for Maharashtra- from beaches and caves to mountains and monuments. Another promising sector in this state is textile and garments. It is one of the top producers of cotton, silk, and other fibers. Naturally, this state is second in terms of the highest FDI equity inflow of $12,226.15 million for C.Y. 2021.


      Delhi is India’s capital for many reasons- it is one of the most urbanized and fastest growing regions of the country. Investors can find Delhi to be known for sectors like agri and food processing, tourism and hospitality, and Information Technology, among others. It offers a host of investment opportunities such as:

      • There are 200 opportunities in the booming real estate sector. Close to 75% of these are in the residential space which has witnessed huge demand due to Delhi’s ever-growing population, migration from other states, and the emerging middle class.
      • The state hosts the largest metro rail network in India. Due to its scope and potential, there are compelling opportunities to invest in Phase 3 of the development project for the Delhi Metro.
      • Delhi is well connected with its neighboring states and the rest of the world. Investors can find it enticing to invest in the development of Regional Rapid Transit Systems for the following:
        • Delhi-Gurugram-SNB
        • Delhi-Ghaziabad-Meerut
        • Delhi-Panipat, etc.

      Delhi also houses the headquarters of important government departments and ministries.

      Tamil Nadu

      Tamil Nadu ranks 2nd in terms of the highest GDP across all Indian states. It provides a compelling investment destination for foreign investors as it harbors the highest number of factories and operational SEZs in India. It is one of the top 10 manufacturing hubs of the world, renowned for producing automobile and auto components, aerospace manufacturing, and electric vehicles. In addition, the state is recognized as 2nd in India for manufacturing Computer, Electronics, and Optical products. In fact, the state has two Special Economic Zones (SEZ) for the Electronics and Hardware sector. Renewable energy is another promising sector of the state, with the capacity to generate 16 GW of renewable energy- the highest in India.

      While the 4 states listed above received the highest FDI equity inflow in the past year, there are several other closely competing states on the list. Gujarat, for example, is another Indian state to look out for in relation to its high rankings on several competitive indices like export preparedness, State Startup Ranking, and Ease of Doing Business. Considering Haryana, Telangana, Punjab, and West Bengal, the list of enticing opportunities in India are endless. Thus it is hardly surprising to observe that overall India was the recipient of US$ 74.01 billion in total FDI inflow. With the government’s increased focus to enhance the ease of doing business in India and the emerging market that the country boasts of, India is poised to witness further development opportunities and both in existing and emerging sectors like artificial intelligence and cyber tech in which Indian states will play the key role.

      This has been co-authored by Devika Chawla and Muskan Hashim.

  • Hong Kong
    • Hong Kong Proposes Refinements to Foreign Source Income Exemption Regime

      To address the EU's concerns over double non-taxation of certain foreign sourced passive income under Hong Kong's territorial tax system, the government has recently proposed refinements to its foreign source income exemption (FSIE) regime for passive income.

      No change will be made to the FSIE regime with regard to active income. According to a consultation paper issued by the Financial Services and the Treasury Bureau, the "territorial source principle of taxation will continue to apply in general. As the primary goal is to tackle cross-border tax evasion, only taxpayers who fail to meet the economic substance requirement with regard to offshore passive non-IP income or fail to comply with the nexus approach for offshore passive IP income will no longer enjoy tax exemption."

      The most important changes are summarized below.

      Covered taxpayers and covered income

      The proposed refinements to the FSIE regime will only affect MNE groups. As stated in the government's October 2021 announcement, the refined FSIE regime will not increase the tax burden of financial institutions since their offshore interest income is already subject to profits tax at present.

      Offshore passive income consisting of interest, IP income, dividends or disposal gains ("in-scope offshore passive income") will be deemed to be sourced from Hong Kong and subject to profits tax if:

      • the income is received in Hong Kong by a constituent entity of an MNE group ("covered taxpayer") irrespective of its revenue or asset size; and
      • the recipient entity fails to meet the economic substance requirement (if the income is non-IP income), or fails to comply with the nexus approach (if the income is IP income).

      The definition of an MNE group and other related terms will be the same as under the Global Anti-Base Erosion (GloBE) rules.

      Economic substance requirement for non-IP income

      In-scope offshore non-IP income will continue to be exempt from profits tax if the taxpayer conducts substantial economic activities in Hong Kong with regard to the relevant passive income ("relevant activities"). To meet the economic substance requirement, the taxpayer will need to meet the adequacy test in terms of employing an adequate number of qualified employees and incurring an adequate amount of operating expenditure in Hong Kong in relation to the relevant activities.

      The paper sets out the following details:

      • for a taxpayer that is not a pure equity holding company, relevant activities include making necessary strategic decisions, and managing and assuming principal risks in respect of any assets it acquires, holds or disposes of;
      • for a taxpayer that is a pure equity holding company, a lower test applies under which relevant activities will only include holding and managing its equity participation, and complying with the corporate law filing requirements in Hong Kong; and
      • outsourcing of the relevant activities will be permitted provided that the taxpayer is able to demonstrate adequate monitoring of the outsourced activities and that the relevant activities are conducted in Hong Kong.

      The economic substance requirement and the source of profits will be considered separately.

      Nexus approach for IP income

      Under the nexus approach, only income from a qualifying IP asset (i.e. patents and other IP assets which are functionally equivalent to patents) can qualify for preferential tax treatment based on a nexus ratio which is defined as the qualifying expenditures (i.e. R&D expenditures that are directly connected to the IP asset) as a proportion of the overall expenditures that have been incurred by the taxpayer to develop the IP asset.

      Participation exemption for dividends and disposal gains

      Participation exemption for offshore dividends and disposal gains will be available if the following conditions are satisfied:

      • the investor company is a Hong Kong resident person or a non-Hong Kong resident person that has a PE in Hong Kong;
      • the investor company holds at least 5% of the shares or equity interest in the investee company; and
      • no more than 50% of the income derived by the investee company is passive income.

      The participation exemption will also be subject to anti-abuse rules, including the switch-over rule, main purpose rule and anti-hybrid mismatch rule.

      Introduction of unilateral tax credit

      In respect of in-scope offshore passive income that is subject to tax in both Hong Kong and a jurisdiction which has not concluded a double tax agreement with Hong Kong, a unilateral tax credit will be available as double taxation relief.

      The consultation ends on 15 July 2022. The government plans to introduce an amendment bill into the Legislative Council in October 2022. If approved, the refined regime will take effect on 1 January 2023 with no grandfathering arrangement. Administrative guidance will be issued to provide detailed rules.

    • Hong Kong Enacts Tax Concessions for Shipping Industry

      The government has gazetted the Inland Revenue (Amendment) (Tax Concessions for Certain Shipping-related Activities) Ordinance 2022, providing half-rate profit tax concessions (i.e. at a rate of 8.25%) to qualifying shipping commercial principals (i.e. ship agents, ship managers and ship brokers). The Ordinance gives effect to the proposal contained in the Chief Executive's 2021 Policy Address, to introduce tax concessions in order to grow the maritime industry in Hong Kong.

      Furthermore, under the Ordinance, the profits derived by a qualifying shipping commercial principal from carrying out a qualifying activity for an associated shipping enterprise that is entitled to a concessionary tax rate or income exemption will be subject to the same concessionary tax rate or income exemption as that applicable to the associated shipping enterprise. The Ordinance has incorporated anti-abuse provisions to safeguard the integrity of the tax system and comply with the latest international tax rules.

      The tax concessions apply to sums received by or accrued to shipping commercial principals on or after 1 April 2022.

  • Switzerland
    • Swiss retail trade turnover rises in June

      Turnover adjusted for sales days and holidays rose in the retail sector by 3.2% in nominal terms in June 2022 compared with the previous year. Seasonally adjusted, nominal turnover rose by 0.1% compared with the previous month. These are provisional findings from the Federal Statistical Office (FSO). Real turnover adjusted for sales days and holidays rose in the retail sector by 1.2% in June 2022 compared with the previous year. Real growth takes inflation into consideration. Compared with the previous month, real, seasonally adjusted retail trade turnover registered an increase of 0.1%. Retail sector excluding service stations Adjusted for sales days and holidays, the retail sector excluding service stations showed a 1.8% increase in nominal turnover in June 2022 compared with June 2021 (in real terms +0.3%). Retail sales of food, drinks and tobacco registered an increase in nominal turnover of 0.2% (in real terms -1.7%), whereas the non-food sector registered a nominal plus of 3.4% (in real terms +1.8%). Excluding service stations, the retail sector showed a seasonally adjusted stagnation in nominal turnover compared with the previous month (in real terms +0.1%). Retail sales of food, drinks and tobacco registered a plus of 0.6% (in real terms +0.6%). The non-food sector showed a minus of 1.6% (in real terms -1.4%).   You can find further information in the press release.
    • Producer and Import Price Index rose in June by 0.3%

      The Producer and Import Price Index rose in June 2022 by 0.3% compared with the previous month, reaching 109.8 points (December 2020 = 100). Petroleum products in particular were more expensive. Compared with June 2021, the price level of the whole range of domestic and imported products rose by 6.9%. These are the results from the Federal Statistical Office (FSO).

      In particular, higher prices for builders' and interiors’ joinery as well as petroleum products were responsible for the increase in the producer price index compared with the previous month. Increasing prices were also seen for gas and dairy products. In contrast, scrap became cheaper.

      The import price index registered higher prices compared with May 2022, particularly for petroleum products. Furthermore, motor vehicles and motor vehicle parts, builders' and interiors’ joinery, computers, other transport equipment, leather and travel goods also became more expensive. In contrast, basic metals and semi-finished metal products as well as petroleum and natural gas saw lower prices.

      You can find further information in the press release.

    • Italy and Switzerland Prolong Agreement on Taxation of Frontier Workers until 31 October 2022

      On 22 July 2022, Italy and Switzerland released a joint declaration (in Italian) extending the mutual agreement, signed on 18 and 19 June 2020, regarding the taxation of frontier workers during the COVID-19 pandemic.

      The mutual agreement will continue to apply until 31 October 2022, despite the end of the COVID-19 pandemic. This will allow the Italian and Swiss competent authorities to consult each other in order to verify whether the conditions for the application of the mutual agreement continue to exist.

    • Switzerland – A hub for personalized health

      The close collaboration between science and industry is unique in Switzerland: Companies in the life sciences sector benefit from fast technology transfer in an innovative ecosystem, driven by cutting-edge research from Swiss-based pharmaceutical companies.

      Thanks to its traditional strength in the life sciences sector and international ICT hotspots, Switzerland offers the ideal environment for innovative companies that want to quickly and easily bring new innovations in personalized health to market. In Switzerland, science and industry have a uniquely close relationship that guarantees fast technology transfer in a versatile and compact ecosystem. Cutting-edge research is carried out by Swiss pharmaceutical companies such as Roche and Novartis, at world-class universities and government institutes; SMEs and startups provide important impetus for this. Switzer-land is investing massively in harmonized data infrastructures, while at the same time placing great importance on data protection.

      Fact sheet: Switzerland - a hub for personalized health

      Source: S-GE

  • United Kingdom
    • UK overseas trade in goods statistics: May 2022

      UK overseas trade statistics (OTS) data detailing international trade in goods at summary product and country level.

      • Total exports of goods for May 2022 were £36.4 billion. This was up £6.0 billion (20%) compared with last month, and up £9.3 billion (34%) compared with May 2021.
      • Total imports of goods for May 2022 were £53.6 billion. This was up £1.2 billion (2.3%) compared with last month, and up £13.7 billion (34%) compared with May 2021.
      • The UK was a net importer this month, with imports exceeding exports by £17.2 billion, narrowing by £4.8 billion on last month.

      Full release including the 1st provisional estimates of trade-in-goods between the UK and both countries of the EU and those outside the EU for May 2022

    • Government Publishes Penalties for UK Facilitators of Tax Avoidance Schemes Involving Non-Resident Promoters

      On 28 July 2022, the UK tax authority (Her Majesty's Revenue & Customs (HMRC)) published a factsheet providing guidance on the penalties UK-based intermediaries may face for facilitating avoidance schemes involving non-resident promoters. The relevant legislation is Schedule 13 to the Finance Act 2022.

      This factsheet provides guidance on:

      • non-resident promoters;
      • when a penalty may be charged for facilitating an avoidance scheme involving a non-resident promoter;
      • the penalty that may be charged;
      • the rights under article 6 of the European Convention on Human Rights, when someone is charged with a penalty; and
      • the right to appeal if someone disagrees with the decision to charge a penalty.
    • Parliament Enacts 25% Oil and Gas Profits Levy in Fast-Track Procedure

      Taxes are about to get a lot more expensive for British oil and gas producers. On 11 July 2022, the House of Commons voted to impose a 25% additional levy on their profits when it enacted the Energy (Oil and Gas) Profits Levy Bill [Bill 135 of 2022-23], under the fast-track procedure.

      In response to the increased cost of living caused in part by rising world oil and gas prices, on 26 May 2022 then-Chancellor Rishi Sunak announced measures to support UK households. He proposed to pay for these measures in part by levying a new tax on the profits from North Sea oil and gas production, the Energy Profits Levy.

      The oil and gas sector now pay a 40% headline tax rate on profits from oil and gas production in the UK and UK Continental Shelf. This consists of a 30% ring-fence corporation tax and a 10% supplementary charge. The Energy Profits Levy imposes an additional 25% surcharge on the extraordinary profits the oil and gas sector now earn and includes an 80% investment allowance. The levy is charged on top of the existing 40% headline rate, bringing the combined tax rate on profits to 65%. With the new levy taking effect retroactive to 26 May 2022, the HM Treasury estimates that the levy will raise around GBP 5 billion in its first 12 months.

      The Treasury also published a technical note that provides additional details on how the Energy Profits Levy will work in practice. This note confirms that the levy is temporary and will be phased out when oil and gas prices return to historically more normal levels, introducing a sunset clause effective at the end of 2025.

      The proposal went from draft legislation to enactment in less than three weeks. On 21 June 2022, HM Revenue & Customs published a draft of the legislation and a draft version of its explanatory notes seeking technical feedback before the bill was introduced. The bill was introduced on 5 July 2022 and adopted just six days later, following the fast-track procedure.

  • United States
    • IRS Issues Practice Unit on Deductions and Credits for Untimely Foreign Corporation Filers

      The US Internal Revenue Service (IRS) has released a Practice Unit discussing when deductions and credits may be allowed for foreign corporate taxpayers that untimely filed IRS Form 1120-F (US Income Tax Return of a Foreign Corporation).

      The Practice Unit, entitled "Allowance of Deductions and Credits on 1120-F Delinquent Returns" (INT-P-254), was last updated on 8 July 2022 and released on 25 July 2022.

      The US Internal Revenue Code (IRC) allows foreign corporations to reduce their gross income by claiming deductions and credits only if they timely file their Form 1120-F (see Note 1). The Form 1120-F is considered timely if is filed:

      • within 18 months after the return's due date under IRC section 6072; or
      • by the date on which the IRS mails a notice to the foreign corporation advising the corporation that the current year tax return has not been filed and that no deductions or credits may be claimed, in a situation where the corporation failed to file a return for the preceding tax year and the year in issue is not the first year for which a return is required to be filed.

      Under IRC section 882(c)(2), untimely foreign corporation filers are generally not entitled to deductions and credits and will be subject to tax under IRC section 11 on their gross income at the rate provided for the applicable year. However, Treasury Regulation 1.882-4(a)(3)(ii) permits the waiver of the filing deadline.

      The practice unit explains the deadline waiver process so that foreign corporation filers may be allowed deductions and credits, despite their untimely filing. Specifically, the practice unit provides the following four steps in determining whether the deductions and credits may be allowed:

      • whether the Form 1120-F is a delinquent return;
      • whether there is a waiver request;
      • whether the examination team recommend a waiver; and
      • whether the examination team recommend a denial of waiver.

      Note 1: A delinquent filer may still claim the credit provided under IRC section 33 for tax withheld at source and the deduction for charitable contributions allowed under IRC section 170, whether or not connected to effectively connected income.

      Note 2Practice Units, issued by the Large Business & International (LB&I) division of the IRS, serve as both job aids and training materials on tax issues for IRS staff. Practice Units are not official pronouncements of law or directives and thus may not be used or cited as precedent.

    • Economy Statement by Benjamin Harris, Assistant Secretary for Economy Policy, for the Treasury Borrowing Advisory Committee August 1, 2022

      Economic data were mixed in the second quarter of 2022.  Real GDP contracted mildly for a second consecutive quarter, but employment continued to rise.  Firms added an average of 375,000 jobs per month and the unemployment rate remained near a half-century low.  Surging energy and food prices—due in part to Russia’s invasion of Ukraine—pushed up headline inflation to new highs, though core inflation remained elevated as well.  At the same time, housing data suggested the start of a market correction as high house prices and rising interest rates constrained demand for new and existing homes.

      As in the first quarter, the economic environment was framed by the emergence of new coronavirus variants, tightening monetary policy, negative impacts from Russia’s invasion of Ukraine, and supply-demand mismatches.  Production was constrained by physical disruption of transportation and other aspects of supply chains, including COVID-related lockdowns, and continued shortages of production materials, such as semiconductors for motor vehicles.  Inflation at the headline and core levels has continued to climb this year, but at the margins, there is some easing of prices in some markets: the federal government has taken a variety of steps to reduce gasoline prices and tightness in grain markets may be loosening.


      According to the advance estimate of second quarter GDP (released Thursday, July 28), real GDP declined by 0.9 percent at an annual rate, following a 1.6 percent drop in the first quarter.   The pullback in economic activity in the second quarter primarily reflected a significantly slower build-up of private inventories, in addition to less residential investment and government spending.  By contrast, net exports and personal consumption expenditures (PCE) both contributed positively to GDP growth.  Despite two consecutive quarters of modest contraction, real GDP was still up 1.6 percent over the last four quarters.

      Real private domestic final purchases (PDFP)—the sum of personal consumption, business fixed investment, and residential investment—was flat in the second quarter, after rising 3.0 percent at an annual rate in the first quarter.  This measure, which excludes final public and international demand for goods and services, as well as the change in private inventories, is typically a better indicator of the private sector’s capacity to generate self-sustaining growth.  A flat reading for PDFP indicates a slowing in underlying growth.

      Real PCE—the largest component of PDFP and roughly two-thirds of real GDP—rose by 1.0 percent in the second quarter on an annualized basis, slowing from a 1.8 percent increase in the first quarter.  Consumption reflected the rotation from goods to services as households slowly returned to pre-pandemic patterns of spending.  Consumption of services rose 4.1 percent due to recovering demand for food services and accommodations, recreation, transportation, and health care.  Meanwhile, consumption of goods fell by 4.4 percent as spending on both durable and nondurable goods pulled back from elevated levels.  Household expenditures on durable goods were 2.6 percent lower, while spending on nondurables dropped 5.5 percent.  The latter partly reflected higher prices for gasoline as well as for food and beverages consumed at home.  Although households are returning to pre-pandemic styles of consumption, the rotation remains incomplete.  The composition of total PCE remains weighted more heavily toward goods than services: as of the second quarter of 2022, the share of goods in total PCE was 4 percentage points higher than the pre-pandemic (2015-2019) average.

      Business fixed investment (BFI) declined 0.1 percent in the second quarter, after surging by 10.0 percent at an annual rate in the first quarter.  This was the first decline in BFI after seven consecutive quarterly advances.  Investment in structures posed a much larger drag on growth, dropping 11.7 percent in the latest quarter, after slipping 0.9 percent in the first quarter.   Equipment investment decreased 2.7 percent in the second quarter, following a 14.1 percent jump in the previous quarter.  Investment in intellectual property products, which was the sole positive contributor to business investment spending, rose 9.2 percent at an annual rate in the second quarter, slowing modestly from a 11.2 percent advance in the first quarter.

      Real residential investment—the third and final component of PDFP—fell by 14.0 percent at an annual rate in the second quarter, following a 0.4 percent increase in the previous quarter.  Lower investment was broad-based.  Single-family structures spending fell 4.2 percent while multi-family structures investment was down 5.6 percent.  Other structures investment—that is, manufactured homes, group housing, and ancillary spending like brokers’ commissions—dropped 22.2 percent in the second quarter.

      The remaining components of GDP represent public sector demand, international demand, and buildup or drawdown of private inventories.  Of these, the change in private inventories (CIPI) posed the largest drag on the economy’s performance in the second quarter. Although firms added $82 billion (constant 2012 dollars) to inventories in the second quarter, the buildup was less than half the $189 billion first quarter increase.  As a result, CIPI subtracted 2.0 percentage points from real GDP growth in the second quarter.  Inventories tend to be a volatile component of GDP and have remained volatile through the pandemic; in the second quarter, slower private inventory investment was led by slower growth of retail inventories, particularly at general merchandise stores and a drawdown in automotive inventories.

      On the international side, the trade deficit narrowed by $70.0 billion to $1,474.7 billion in the second quarter, adding 1.4 percentage points to GDP growth.  Total exports of goods and services surged by 18.0 percent at an annual rate, led by industrial supplies and materials as well as services (travel).  Meanwhile, total import growth slowed to 3.1 percent.  The second quarter improvement in the trade deficit was the first since the middle of 2020.

      For public-sector demand of goods and services, total government spending declined 1.9 percent at an annual rate in the second quarter, after decreasing 2.9 percent in the previous quarter.  Federal government consumption and investment fell by 3.2 percent, accounting for about two-thirds of the decrease in public spending.  The nondefense category drove the decline at the federal level, largely reflecting the sale of crude oil from the Strategic Petroleum Reserve (SPR), which was tabulated as a decrease in nondefense consumption expenditures.[1] Meanwhile, defense spending rose 2.5 percent, after five consecutive quarters of decline, and state and local government consumption declined 1.2 percent in the second quarter.


      Labor markets remained very tight in the second quarter.  After generating 6.7 million payroll jobs last year and 1.6 million jobs in the first quarter, the economy added another 1.1 million in the second quarter.  As of June, a total of 21.5 million jobs have been recovered during the current recovery, or 98 percent of those lost during the two-month recession in early 2020.  Private sector payrolls now exceed pre-pandemic levels.  The unemployment rate, meanwhile, has remained at 3.6 percent since March, just one-tenth of a percent above the half-century low of 3.5 percent seen just before the onset of the pandemic.  The broadest measure of unemployment—the U-6 rate, a measure of labor underutilization that includes underemployment and discouraged workers in addition to the unemployed—has also continued to decline in 2022, reaching 6.7 percent in June.  This is the lowest U-6 rate in the history of the series, which dates from January 1994.  As of June 2022, the long-term (27 or more weeks) unemployment rate, expressed as a percentage of the labor force, also dropped sharply last year and, this rate had declined to 0.8 percent, or only 0.1 percentage point above the pre-pandemic low.

      By contrast, recovery in labor force participation stalled in the second quarter of 2022.  After climbing to 62.4 percent in March, or 1.0 percentage point below the pre-pandemic rate, the total labor force participation rate (LFPR) eased to 62.2 percent in June.  For prime-age (ages 25 to 54) workers, the LFPR in June was 82.3 percent, down 0.2 percentage points from March and 0.8 percentage points below the nearly twelve-year high of 83.1 percent reached in January 2020.  For those older than 55 years of age, the LFPR stood at 38.4 percent in June, reversing all of the improvement seen in the first quarter.  Between 2016 and 2019, the LFPR for those older than 55 averaged 40.1 percent, but over the past 2½ years, this rate has averaged 38.8 percent, possibly suggesting a downward shift in labor force participation among older adults due to such factors as Covid concerns and rising retirement rates.

      Labor market conditions remain historically tight as labor supply has not matched labor demand, which has been at or near record highs since February 2021.  Just before the pandemic, the number of job openings were at a near-peak at 7.4 million at the end of October 2019.  By the end of May 2022 (latest available data), job openings stood at 11.3 million, roughly 50 percent above the pre-pandemic high.  Given the mismatch, workers retain considerable leverage with regard to job mobility and wage demands.  By the end of May 2022, the number of job quits ticked down to 4.3 million but was still roughly 20 percent above the pre-pandemic high, and the official number of unemployed persons per job opening was at a record low of 0.5 for the third consecutive month in May.  For the two years immediately preceding the pandemic, the unemployed person per job opening ratio ranged between 0.8 and 1.0.

      Persistent tightness in labor markets continues to support strong nominal wage growth.  For production and nonsupervisory workers, nominal average hourly earnings increased 6.4 percent over the year through June 2022—though this is somewhat slower than the 6.7 percent pace registered earlier this year from January to March.  The Employment Cost Index (ECI), which better controls for changes in labor composition and is a more comprehensive measure of total compensation, showed private sector wages increasing 5.7 percent over the twelve months ending in June 2022, accelerating from the previous quarter’s twelve-month pace of 5.0 percent and marking the fastest yearly rate since the fourth quarter of 1982.


      Inflation strengthened in the second quarter of 2022.  Over the twelve months through June 2022, the Consumer Price Index (CPI) rose 9.1 percent.  The CPI for energy goods and services surged 41.6 percent over the year through June, accounting for a third of the headline increase and marking the largest year-over-year increase since the Russian invasion of Ukraine in late February.  Food prices rose 10.4 percent over the year, contributing about 15 percent of the overall increase in June, and reflecting rising prices for energy as well as fertilizers and other agricultural input costs and ongoing supply chain disruptions.  Stripping out the volatile food and energy components, core inflation was 5.9 percent over the twelve months through June, slowing marginally for the third consecutive month.

      With regard to monthly developments, the CPI for all items has generally trended higher thus far in 2022.  More than half of inflation experienced so far in 2022 is accounted for by food and energy.  After slowing to 0.3 percent in April, reflecting a modest and temporary retreat in energy price inflation, the headline rate has since accelerated on sharply higher energy and food prices, rising 1.3 percent in June.  Looking at specific commodities in the wake of the Russian invasion, the price of West Texas Intermediate (WTI) advanced nearly 33 percent from the day before the invasion through early June, and the price of natural gas increased almost 106 percent over the same period.  Depending upon the variety, the price of wheat increased over that same period by as much as 47 percent.  Meanwhile, the average price of U.S. regular gasoline jumped about 42 percent from the same point in February through mid-June.  Since then, however, regular gasoline’s price has declined 9.4 percent through mid-July and wheat prices have fallen been 20 and 25 percent, depending upon the variety.  Despite the notable easing in commodity prices in recent weeks, gasoline and other energy prices remain significantly elevated relative to year-ago levels, and food price inflation may remain elevated as high energy prices filter through agriculture supply chains.

      Core CPI growth has accelerated in each month of the second quarter and rose by 0.7 percent in June.  Among the components of core goods CPI, new and used car prices have begun to increase again—albeit at a slower pace than seen last year.  Among services, the shelter price index—which accounts for about 40 percent of the core CPI—has been running in the range of 0.5 percent to 0.6 percent for the past five months.  In June, CPI rent of primary residence jumped 0.8 percent and owners’ equivalent rent surged 0.7 percent accounting for 40 percent of monthly core CPI inflation.  In recent months, the owners’ equivalent rent portion of shelter has dominated shelter inflation, but would-be home buyers appear to be turning to the rental market amid rising mortgage rates and high house prices.  With evidence that new leases are being contracted at increasingly higher rates—monthly increases in the mid-teens in some metropolitan areas—the shelter component is expected to keep core inflation rates elevated in the near-term.

      The Federal Reserves’ preferred measure of inflation is the PCE price index.  The PCE price index assigns different weights for different components than does the CPI and uses a different methodology in its calculation, the drivers of both measures remain similar.  As with the CPI, the headline PCE accelerated to 1.0 percent in June, and the core PCE measure advanced 0.6 percent.  Inflation as measured by the PCE and core PCE price indices is running at a lower rate than CPI inflation, largely due to the higher weight of health care services in PCE, which has seen more normal rates of price increases.  PCE inflation typically runs at a slower pace than CPI inflation due to the methodological and weighting differences.  From 2000 to 2019, headline PCE inflation was 0.3 percentage points slower than CPI inflation on a year-over-year basis, while core PCE inflation was typically 0.2 percentage points slower than core CPI inflation.  Since spring 2021, however, the gaps have widened considerably.  As of June 2022, PCE inflation was 6.8 percent on a year-over-year basis, or 2.3 percentage points below CP inflation.  The gap between core measures has also widened—though to a lesser extent.  Core PCE inflation was 5.3 percent over the year ending June, compared to 5.9 percent inflation as measured by the core CPI.


      In the second quarter, housing markets began to see minor easing of the supply-demand imbalances that were aggravated by the pandemic.  Rising mortgage rates and still-rapid price appreciation have weighed on home purchases.  Existing and new home sales have been trending lower since the beginning of the year.  In June, existing home sales—which account for 90 percent of all home sales—declined 5.4 percent over the month and were down 14.2 percent on a twelve-month basis.  New single-family home sales declined 8.1 percent in June and were down 17.4 percent over the year through June.  Lower sales have led to higher inventories of homes available for sale: since falling to an all-time low of 850,000 homes in January and February 2022, existing home inventories have risen to nearly 1.3 million homes as of June.  Inventories are now equivalent to 3.0 months of sales, roughly double the series’ low of 1.6 months from January, but still low relative to the average 3.9 months of supply in 2019.   For new homes, the inventory of new single-family homes available for sale has risen well above the 7-month supply deemed consistent with a balanced market; at the end of June, there were 9.3 months’ supply of new homes on the market.

      So far, the decrease in demand has had only a small effect on house price appreciation, though house prices are measured with a lag.  The Case-Shiller national house price index—which measures sales prices of existing homes—was up 19.7 percent over the year ending in May 2022, faster than the 16.9 percent advance over the year through May 2021, and a nearly five-fold increase over the 4.4 percent, twelve-month rate seen through May 2020.  The FHFA house price index rose 18.3 percent over the year ending in May 2022, in line with the 18.2 percent pace over the year through May 2021 but more than three times the 5.2 percent rise registered over the year through May 2020.  Although each index in May 2022 registered its slowest monthly pace in roughly six months, both indices have risen above 1 percent monthly since August 2020.

      Meanwhile, new construction weakened in the second quarter.  After falling by 1.7 percent from December to March, single-family housing starts dropped 17.5 percent from March to June.  Single-family permits were down 16.6 percent in the second quarter, despite a gain of 4.0 percent the previous quarter.  However, the multi-family sector, albeit volatile, rebounded in the second quarter, with multi-family starts up 9.9 percent, after a 5.6 percent decline in the previous quarter.  Moreover, the total number of homes under construction as of June 2022 (single-family and multi-family) was at a series high (data series begins in 1970), while the number of new housing units that have been authorized, but not yet started (i.e., the backlog of new construction) stood at 285,000 in June 2022, just below the all-time high of 290,000 units reached in March (data begin in 1999).


      Since the previous Economy Statement to the Treasury Borrowing Advisory Committee, the pandemic has become a less acute risk to the economic outlook—though it still poses headwinds to the economy.  Although new strains of the Omicron variant are more able to infect vaccinated people, vaccines are proving effective against serious complications and hospitalization rates are well below those seen during previous variant waves.

      Inflation: Inflation remains the dominant downside risk to the economy, as it has led to lower real spending, declining real wages, and historically pessimistic consumer sentiment.  Headline inflation is being elevated by the global effects of Russia’s invasion of Ukraine.

      Core inflation also remains high and has yet to show clear signs of easing.  Inflation for owner-occupied housing, resulting from the sharp jumps in house prices in recent years, has put a high floor for core inflation, and rising demand for rental properties is putting upward pressure on rents.  Core inflation is broad-based across both goods and services.  Prices for core goods remain stubbornly high, and lean inventories of durable goods—particularly inventories of motor vehicles—mean minor supply-chain disruptions can lead to sharp prices increases.  However, policies to reduce inflation may result in further asset market volatility, lower consumption and investment growth, and slower job growth.

      Energy Commodity Prices:  Following Russia’s invasion of Ukraine, energy commodity prices spiked, contributing to the sharp rise of inflation and reduced demand for non-energy goods and services.  Although prices of oil, natural gas, and gasoline remain high, prices started to decline at the end of the second quarter.  Since mid-June, for example, consumers have seen a 14.3 percent decline in the price of regular retail gasoline, which will push down monthly inflation in July.

      However, additional energy commodity price volatility poses a risk to U.S. economic growth.  High energy prices feed into large aspects of agriculture and manufacturing supply-chains, further weakening the ability of supply to meet demand.  Sharp price jumps also quickly reduce households’ purchasing power, potentially causing a pull back in other areas of consumption.  In addition, commodity price shocks are likely to have an outsized shock on other advanced economies, which can weaken international demand for U.S. goods and service exports, further slowing economic grown.

      Russia’s unlawful invasion is the primary cause of high global prices.  Accordingly, the U.S. Treasury has been working recently with finance ministers in the G-7 to implement price caps on Russian oil, representing a significant step in advancing the Administration’s twin goals of sharply reducing Russian revenue and avoiding further disruptions to global energy supplies.


      Real GDP declined 0.9 percent at an annual rate in the second quarter of 2022, after dropping 1.6 percent in the first quarter.  PDFP growth, which had accelerated strongly in the first quarter despite a 1.6 percent decline in real GDP, slowed in the latest quarter to a flat reading.  However, the second quarter’s setback was a function of slower inventory investment; absent inventories, Real Final Sales of Domestic Product grew 1.1 percent, reflecting strong growth in exports and a further increase in consumer spending.

      Reference: https://home.treasury.gov/news/press-releases/jy0903
  • Focus Africa
    • Africa in Review by the Numbers (July 2022)

      $60 million  Financial package has been signed by the African Development Bank (AfDB) comprising $50 million subordinated debt to support CRDB Bank’s regional expansion efforts and a senior loan of $10 million to accelerate access to finance for small businesses managed and owned by women in Tanzania. (Africa Business Communities)

      1 million Barrels of oil are reportedly being produced in Libya daily, boosting the North African country's production after output had halved since April. The boosted production levels result from reopened fields and export terminals that were largely shut since the spring. (Oil and Gas 360) 43% Increase in revenues from Uganda's coffee exports for the 12 months which ended in June 2022. The exports amounted to 6.3 million 60-kilo bags worth $862.28 million compared to 6.1 million 60-kilo bags valued at $ 559.16 million the previous year. (Food Business Africa)

      $750 million  Loan from Afreximbank approved by Ghanaian lawmakers as part of a $1 billion credit target to finance the national budget. The country expects to get the remaining $250 million from other international lenders. (Business Insider Africa)

      300,000 Solar kits to be distributed in Mozambique as part of a project to achieve universal access to electricity by 2030. The Netherlands Development Organisation (SNV) signed an agreement with electricity provider Ignite Power to provide solar home systems to areas not served by the national grid. (Afrik 21) 70% Jump in the cost of Nigeria's petrol subsidy should it remain in place next year, for a total state expenditure of up to $16.2 billion. Africa's largest oil producer imports refined products because of a lack of domestic refining capacity. (Reuters)

      $459.8 million Sale announced by Diageo for its Cameroonian Guinness unit to Castel Group. The London-based brewer said the sale would enable expanded brewing and distribution capacity, having outgrown its existing operations in the country. (Business Insider Africa)

      25% Stake sold by Airtel Africa in its local mobile money business, Airtel Money, in a deal that values the mobile money provider at $2.1 billion. The sale is part of a continent-wide deal that has seen Airtel raise $550 million from four institutional investors. (CEO Business Africa) 100 MWp Solar PV plant to be built in Chimuara, Mozambique by Solarcentury Africa, its second in the country. The project will be implemented in several phases, the first of which will have a capacity of 30 MWp. (Africa Energy Portal)

      $1.3 billion Funding rolled out by European Union to help Nigeria to diversify its economy away from oil. The funding will be provided until 2027 under the EU's Green Deal initiative and will, among other things, focus on enhancing access to renewable energy and boosting the development of the agricultural sector. (CNBC Africa)

      150,000 People in Democratic Republic of Congo to benefit from the new mini-grid model launched by Bboxx in partnership with telecommunications operator Orange. The mini-grid project will help accelerate the provision of clean energy access for households across the country. (ESI Africa) 400,000 Hectares of land has been set aside in Tanzania for wheat cultivation aimed at ending the shortage in the country. The Ministry of Agriculture has also committed to spending $66.5 million on research and development to enhance crop production, including supplying improved seed to smallholders. (Food Business Africa)

      $2 billion Debt guaranteed by the UK government to help the AfDB to free up finance for climate-related projects. The additional lending capacity will be used to fund projects for climate resilience and renewable energy within the region. (Bloomberg)

      10 million tonnes Volume of wheat to be imported by Egypt within the next six months to boost local consumption and remaining reserves. In addition, the World Bank approved a loan worth $500 million to boost food security in the country. (The Africa Report) 12% Rise in palm kernel oil production expected in Nigeria in 2022/23, bringing output to 440,000 metric tons (MT), up from the previous period's 393,000 MT. The oil extraction rate is also expected to improve, due to private sector investors improving operation efficiency by upgrading to more modern crushing and extraction equipment and machinery. (Food Business Africa)

      Review by Kili Partners . Powered by Asoko Insight

    • Nigeria Terminates Reduced 7.5% Withholding Tax Rate on Investment Income with Treaty Partners

      Nigeria has terminated the flat 7.5% withholding tax rate previously applicable on dividends, interest and royalties earned by taxable persons resident in countries with a tax treaty with Nigeria with effect from 1 July 2022.

      Going forward, the withholding tax rates under domestic law (i.e. 5% for individuals and 10% for companies on dividends, interests and royalties) will apply also to payments to residents of treaty countries. This applies unless the rates in the tax laws exceed the maximum rate under the tax treaty, in which case, the maximum rate specified in the tax treaty will apply.

      The Federal Inland Revenue Service (FIRS) announced these changes through an information circular on the Claim of Tax Treaties Benefits and Commonwealth Relief in Nigeria ("the Circular"). In a follow up to the Circular, the FIRS issued a public notice on the application of withholding tax on dividends, interests and royalties paid by Nigerian residents to non-resident recipients of such payments in countries with which Nigeria has already entered and executed tax treaties.

      The circular/notice also provides that the withholding treaty rate cap applies only to payments made to non-resident entities having no permanent establishment in Nigeria and payments received by them from Nigeria are not connected to such permanent establishment.

      However, where the payment is connected to a permanent establishment or a fixed base in Nigeria, the domestic withholding tax rate applies on the dividend, interest and royalties, regardless of the withholding tax rate specified in the relevant tax treaties.

      The Circular was issued on 11 May 2022 in line with FIRS' powers under the Federal Inland Revenue Services (Establishment Act) 2007 and it replaces an earlier Circular issued in 2021 on the subject. Hence, any previous ruling, direction, or approval issued by the FIRS on the applicable withholding tax rate under tax treaties is automatically revoked by 1 July 2022.

    • Republic of the Congo joins international fight against tax evasion as 165th Global Forum member

      The Republic of the Congo (hereafter “Congo”) joins the international fight against tax evasion by becoming the 165th member – and 34th African member – of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The country’s decision to join the Global Forum was made public on the last day of the 11th meeting of the Africa Initiative, which was held in Nairobi, Kenya, from 14 to 16 June 2022.

      Members of the Global Forum include all G20 countries, all OECD members, all international financial centres and a large number of developing countries.

      "We are delighted to welcome Congo as the latest Global Forum member," said Maria José Garde, Chair of the Global Forum. "The regular enlargement of the Forum’s membership highlights the importance given to tax transparency by the international community, and the resolve of governments to come together to fight and prevent tax evasion and avoidance."

      Like all other members, Congo will participate on an equal footing and is committed to combatting offshore tax evasion through the implementation of the internationally agreed standards of exchange of information on request (EOIR) and automatic exchange of information (AEOI).

      Congo will also participate in the Africa Initiative, a programme of work launched in 2014 to support domestic revenue mobilisation and the fight against illicit financial flows in Africa through enhanced tax transparency and exchange of information. The recently published Tax Transparency in Africa 2022 progress report underlined the Initiative’s achievements to date and presented its various work streams.

      The Global Forum is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the exchange of information on request standard and the standard of automatic exchange of information. These objectives are achieved through a robust monitoring and peer review process. The Global Forum also runs an extensive capacity-building programme to support its members in implementing the standards and help tax authorities make the best use of cross-border information sharing channels.

    • Tax Authority Reminds Non-Resident Suppliers of Digital Services to Register for VAT and File Returns

      The Uganda Revenue Authority has reminded non-resident suppliers of digital services to non-taxable persons in Uganda to charge VAT on their supplies, file quarterly returns and make payments within 15 days from the end of each quarter. This is a follow up to previous communications by the URA.

      All non-resident suppliers of electronic services are expected to:

      • have registered for VAT online by 1 July 2022; and
      • file a quarterly tax return online and pay VAT charged for the first quarter of the financial year by 15 October 2022.

      The simplified system for registration, online filing of VAT returns and payment of VAT is accessible through the URA web portal.

      This news was announced by the URA through a public notice dated 7 July 2022.