News, Press Release

East Africa losing upto 2 billion dollars to unproductive tax incentives

Governments have taken few positive steps to curb loss of revenue

DODOMA, 18 June 2016– A new report by Tax Justice Network – Africa and ActionAid, East African countries (Tanzania, Kenya, Uganda and Rwanda) are losing approximately $2 billion a year of revenue each year by granting tax incentives to multinational 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.

The report, entitled ‘Still Racing towards the Bottom? Corporate tax incentives in East Africa’, states that while statements indicating commitments to revise tax incentive policies have been made by policymakers of the region, many questions abound 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.

According to Yaekob Metena, ActionAid Tanzania’s country director, “Though there have been improvements in recent years in addressing the issue, 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.”

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.

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,”  said Metena.

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.

Many leaders are promising to take greater measures towards progress on this in the region but there is a need for tangible actions to be taken towards that end,” said Tax Justice Network – Africa’s Deputy Executive Director, Jason Braganza.

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.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 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,” added Braganza.

ENDS

For interviews or further information, please contact:

          Paulina Teveli                                                                                              Michelle Mbuthia 

Communications Coordinator- ActionAid Tanzania                             Tax Justice Network- Africa

Tel: +255 (0) 22 2700596 | Mob: +255 (0) 755 706322                       Tel: +254 724994796

Email at Paulina.Teveli@actionaid.org                                                    Email: mmbuthia@taxjusticeafrica.net

 

 

Editors’ Notes:

  • Four countries alone -Kenya, Uganda, Tanzania and Rwanda could still be losing around $1.5 billion and possibly up to $2 billion a year through the granting of corporate tax incentives to foreign companies. Uganda loses around US$370 million, Kenya around US$1.1 billion, and Rwanda up to US$176 million. This amounts to, total revenue losses that would amount to up to $2 billion a year.
  • The 2 billion a year figure (less than the 2.8 billion a year figure from our 2012 report) reflects a welcomed commitment by the EAC government’s. Governments have taken some positive steps to reduce tax incentives, especially those related to VAT, which are increasing tax collections and providing vital extra revenues that could be spent on providing critical services. However, the figure is exceedingly estimated and may well be short of reality as accurate reliable data in most cases does not exist for all incentives given to foreign firms.
  • While welcome statements indicating commitments to revise tax incentives have been uttered by politicians of the region, many questions arise how eliminating tax incentives will be realised. 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 governments to carry out this work.
  • For Burundi, determining the revenue losses due to tax incentives was particularly challenging in this case owing to an almost complete lack of data. However, Burundi’s President Pierre Nkurunziza, recently indicated that at least 81 billion Burundian Francs ($52 million) has been lost to companies or officials who have been given tax exemptions to import goods to build infrastructure and instead sold on the materials.
  • In Tanzania, revenue losses from tax incentives given in 2014/15 were likely to be around US$790 million; although this figure predates the new VAT law which is claimed will result in extra revenues of US$500 million.
  • Kenya, the amount of revenue lost through tax incentives is likely to be near the KShs100 billion (US$1.1 billion) a year level.
  • In Ugandan, it remains unclear how much Uganda is losing to tax incentives since government figures do not appear to provide full figures, but the amount is likely be around US$370 million.
  • In Rwanda, estimates suggest that Rwanda is losing between Rwf 87 billion (US$115 million) and Rwf123 billion (US$176 million) a year.
  • ActionAid is a global movement of people working together to achieve greater human rights for all and defeat poverty. We believe people in poverty have the power within them to create change for themselves, their families and communities. ActionAid is a catalyst for that change.
  • Tax Justice Network-Africa (TJN-A) is a Pan-African initiative established in 2007 and a member of the Global Alliance for Tax Justice. It is a network of 29 members in 16 African countries. Through its Nairobi Secretariat, TJN-A collaborates closely with these member organisations in tax justice activities at the national, regional and global level. TJN-A seeks to promote socially just and progressive taxation systems in Africa, advocating for pro-poor tax policies and the strengthening of tax systems to promote domestic resource mobilisation. TJN-A aims to challenge harmful tax policies and practices that favour the wealthy and aggravate and perpetuate inequality.
18/06/2016

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The Tax Justice Network-Africa (TJN-A) is a Pan-African initiative and a member of the Global Alliance for Tax Justice. Launched in January 2007 during the World Social Forum (WSF) held in Nairobi, TJN-A promotes socially- just, accountable and progressive taxation systems in Africa. It advocates for tax policies with pro-poor outcomes and tax systems that curb public resource leakages and enhance domestic resource mobilisation.

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