- To align countries tax policies to AfCFTA
African finance ministers and tax officials from 38 countries are meeting today to discuss how to harmonise tax policies and improve on domestic revenue collection.
The African Tax Authorities Forum (ATAF), to be held on July 30 – 31 in Kigali, is expected to focus on policy reforms and regulations and how best countries can keep up pace with the ever-changing global tax agenda.
Rwanda Revenue Authority Commissioner General Richard Tusabe said the continent needs strong tax policies and administration to plug revenue leaks and support job creation.
“Africa’s biggest challenge is job creation. So, how do we build a tax system which is going to create more jobs on the continent? How do we leverage on technology?” Mr Tusabe posed, stating that these were some of the issues the forum will seek to address.
The revenue authorities also hope to push for the adoption of global tax standards to combat tax evasion by multinationals.
These enterprises, taxmen say, exploit loopholes in countries where policies and regulations are weak by shifting profits from economies that levy higher taxes to low-tax nations thereby reducing their taxable income.
“There is a serious gap in the policy changes required to make effective tax administration,” said Mary Baine, ATAF director of tax programmes.
“At the same time, some countries have legislation and regulations but low capacity to effectively implement through balanced audit processes and risk assessment still exists and is compounded by limited technological support,” Ms Baine added.
Taxmen blame low domestic resources mobilisation – how revenues are raised and spent – on lack of a nexus between the policy makers and tax administrators.
This disconnect is said to lead to suppressed contribution of taxes to GDP, which in Africa has stagnated at 16.69 per cent compared to 34.3 per cent contribution in OECD (Organisation for Economic Co-operation and Development) countries, most of which are high income economies.
To fund development projects, most African countries have turned to debt as domestic revenues remain low. However, the International Monetary Fund has warned that sub-Saharan African is at a growing risk of debt distress, weighed down by heavy borrowing and budget deficits, despite an overall uptick in economic growth.
Tax experts say Africa can come out of the debt trap if it expands the tax-to-GDP ratio through mobilisation of domestic resources for investment and development.
According to ATAF, African countries with stronger transfer pricing and interest limitation legislation are reporting early gains. Last year, these countries collected $160 million in additional tax after efforts against transfer pricing.
“The solutions ATAF has developed are now beginning to slowly help, but there is need for political goodwill to enact the relevant laws and policies.
“When compared to Europe, African leaders are still yet to be fully engaged in the benefits of advanced tax policy and sound economic planning as a means of limiting capital flight and advancing revenue collection,” said Ms Baine.
At the forum, the revenue officials will also address ways in which to align their countries’ tax policies to the African Continental Free Trade Area (AfCFTA) launched early this year.