Windhoek - Pan-African organisation and member of the Global Alliance for Tax Justice, Tax Justice Network Africa (TJNA), has urged African countries to revisit their Double Tax Avoidance Agreements (DTAAs) and develop treaties that promote the development of the continent.
This comes in the wake of renewed interest and growing concern among African countries on the impact of weak double tax agreements resulting in loss of billions of dollars in tax revenue which could have been used for development.
DTAAs is defined as a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. It is applicable in cases where an individual is a resident of one nation, but earns income in another.
In an interview, TJNA executive director, Alvin Mosioma, told The Southern Times that the current DTAAs signed by many African countries had loopholes that were being easily manipulated by multinational corporations at the expense of Africa.
“We call upon all our African governments to revisit the existing tax treaties especially those signed with tax havens to ensure that they are not leading to the erosion of these countries tax bases. There is a need for our governments to do a wide consultancy and develop treaties that close the current loopholes that are being manipulated by MNCs,” said Mosioma.
He called for the parliamentarians and civil society organisations to represent public interests in the treaty ratification process.
Mosioma said while the principle of DTAAs was to discourage double taxation, many treaties signed by African countries, particularly with tax havens, were resulting to double non-taxation.
Loopholes in DTAAs have seen MNCs doing treaty shopping and round trips as a way of evading paying taxes in Africa.
Treaty shopping is where a business that resides in a home country that doesn't have a tax treaty with the source country from which it receives income can establish an operation in a second source country that has a favourable tax treaty in order to minimise its tax liability with the home country.
“Through treaty shopping, many countries in Africa are collecting less tax revenue from investors than they should rightfully collect. Tax havens across the world are aggressively positioning themselves as conduits for channelling investments by selling opacity and low taxation, leading to haemorrhaging of financial resources, known as illicit financial flows,” said Mosioma.
He said the fact that the tax haven treats domestic and international corporations differently was also a magnet to MNCs who would have intentions of evading tax.
While Mauritius has positioned itself as the gateway for investment in Africa through its extensive treaty networks, other African countries are experiencing huge losses in tax revenue.
TJNA applauded the recent development in Senegal where the country nullified its DTAAs with Mauritius. The DTAAs between the two countries was causing Senegal to lose approximately $150 million annually in tax revenue.
Mosioma urged all African countries to follow suit.
“In Kenya, sometime in March this year, we managed to challenge the DTAAs that had been ratified between Kenya and Mauritius. The challenge was taken to court and the DTAA was cancelled and stopped from being implemented,” he said.
In developing countries such as those in Africa, the United Nations Conference on Trade and Development (UNCTAD) suggests that at least $100 billion in tax revenue is lost annually due to tax avoidance by MNCs.
At the global level, TJNA has estimated that $500 billion in corporate tax is dodged each year by MNCs.