African tax agencies agree to relook investor incentives

Pauline Dikuelo | Friday November 2, 2018 14:17

The decision was taken during the fifth ATAF general assembly that took place recently in Gaborone, Botswana attended by more than 200 officials from finance ministries and tax administrations of 30 African countries.

Policymakers attending the assembly strongly criticised ill-conceived tax incentives offered to woo potential investors, describing them as a substantial drain on Africa’s revenue. They noted that the impact of these incentives was often neither measured nor significant when compared to the foregone revenue.

“ATAF should support governments’ approaches on evaluation, develop cost benefit analysis to assess the impact of incentives and consider possible work on incentives in the context of the extractives industry,” participants said in their official recommendations.

Further, participants recognised that Africa’s ability to improve Domestic Resource Mobilisation (DRM) relies on political support to introduce well-designed and appropriate tax policies as well as effective and updated legislation supported by efficient tax administrations.

The assembly also discussed how African countries could move beyond aid dependency towards African self-reliance. The discussion focussed on the challenges and opportunities facing ATAF members in building strong tax systems to mobilise domestic resources for national development.

“ATAF has served as the platform for technical assistance, promoting good governance, capacity building and for developing products that contribute to DRM in Africa,” an outcomes statement released after the assembly read.

Participants said the topic of aid and building African self-reliance through DRM was both timely and significant in Africa’s development agenda 2063. “Citizens and governments need to be sensitised to the key role of tax, a theme that informed trends in tax policy.”

To reinforce DRM, the assembly discussed the opportunities for improving voluntary compliance in African tax systems and the challenges of a large informal economy.

Areas considered included presumptive taxes, segmentation and sector challenges including oil and gas, taxpayer education, auditing integrity, and the significance of the social contract.  Participants recognised the challenges and opportunities posed by the digitalisation of economies. They noted that the growing importance of data, intangibles, and the absence of a physical presence to do business, challenge global tax rules, adding that Africa must have a powerful pro-active voice in the global tax debate to ensure the rules are fit for purpose in Africa.