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East Africa Losing Billions of Dollars to Unproductive Tax Incentives

Sunday, June 19, 2016 - 14:26

According to a new report published today Saturday 18th June at Dodoma Tanzania by Tax Justice Network - Africa and ActionAid, East African countries (Tanzania, Kenya, Uganda and Rwanda) are losing around $1.5 billion and possibly up to $2 billion a year of revenue each year by granting tax incentives to foreign companies.

The report follows the EAC report series produced by the two organizations in April 2012, examining the impact of tax incentives on the region and giving recommendations to the EAC on how to end a race to the bottom. This follow up report assesses what has changed since 2012.

East African governments have taken some positive steps to reduce tax incentives, especially those related to VAT, which are increasing tax collection and providing vital extra revenue that could be spent on providing critical services. However, they are still failing to eliminate all unnecessary tax incentives. Countries are still providing generous tax breaks in the form of tax holidays, capital-gains tax allowances and royalty exemptions and these East African countries continue to lose colossal amounts of revenue through unnecessary tax exemptions and incentives given to corporations.

According to Yaekob Metena, ActionAid Tanzania’s country director:

Though there have been improvements in recent years in addressing the issue by governments, governments in East Africa continue to give away domestic resources in tax incentives, funds that could pay for the regions’ education and health needs and meeting the development objectives.”

There is need to shift the policy environment in the region on the issue of incentives as; political and financial national and institutional authorities have admitted that tax incentives are in fact harmful to domestic revenue mobilization and need to be revised, costed and in most cases eliminated. In fact, as our report shows that giving tax incentives is still fueling competition at the EAC level, and derailing any meaningful progress towards regional harmonization of tax policies. Regional competition for investors through providing tax incentives is still alive and is undermining integration.”  

The report, entitled ‘Still Racing towards the Bottom? Corporate tax incentives in East Africa’, states that while welcome statements indicating commitments to revise tax incentives have been uttered by policy makers of the region, many questions arise on how eliminating tax incentives will be realized. It is unclear how these tax incentives will be revised, costed and phased out in practice and what resources and expertise are at the disposal of the governments to carry out this work.

“Many leaders are promising to take greater measure towards progress on this in the region and more tangle actions are needed towards that end said Tax Justice Network - Africa’s executive director, Alvin Mosioma.”

Evidence gathered suggests that collectively, the four East African countries (Kenya, Uganda, Tanzania and Rwanda) could still be losing around $1.5 billion and possibly up to $2 billion a year,” said Tax Justice Network - Africa’s executive director, Alvin Mosioma.”

The report calls for East African governments to review the tax incentives they are granting with a view to abolishing all unproductive incentives. Any incentives that are determined to be effective should be targeted at achieving specific social and economic objectives that benefit EAst African citizens.

The report further states that the East Africa Community (EAC) must accelerate the harmonization of its tax legislation with the EAC Agenda by ratifying the East African Code of Conduct on Harmful Tax Competition and implementing at national levels the recommendations of the African Union High Level Panel on Illicit Financial Flows that was adopted at the AU Summit in January 2015.

Contributing during the launch, some of MPs insisted that Tax incentives is the major contributing factor in the loss of a country revenues and its mainly caused by confidentiality of the agreements” One person with authority can just decided to grant tax incentive to a company…This is not good. We request all agreements with public interest to be brought in the parliament for discussion instead of being decided by few people only”.Said Hon. Rehani

 The event was organised by Tanzania Tax Justice Network in collaboration with ActionAid and attended by more than 80 members of Africa Parliamentarians Network Against Corruption(APNAC) Tanzania Chapter.

 http://www.actionaid.org/tanzania/publications/still-racing-towards-bottom