Sharon Kavhu recently in Nairobi, Kenya
The creation of a single liberalised market in Africa through the African Continental Free Trade Area (AfCFTA) has several implications on the continent’s tax revenue.
While the AfCFTA agreement has created a lot of opportunities for Africa as a continent, there are still other countries concerned about the tax revenue loss brought about by the elimination of trade tariffs.
Most of the concerned countries rely on tax revenue for resource mobilisation and The Southern Times last week gathered that there were concerns on the implications of the agreement on tax revenue.
In an interview during the Pan African Conference on Illicit Financial Flows and Taxation last week, Egbiri Egbiri Ifegwu, principal legal counsel at the African Development Bank, said revenue loss brought about by AfCFTA are way lesser compared to the benefits.
“What we have to understand is that the effects should not be evenly spread, they are countries that will benefit and they are also some who will have losses, particularly countries that rely so much on tariffs for their development.
“Therefore, if those countries rely on tariffs for their development, for instance if they rely 90 % on revenue on tariffs and these are eliminated, then the country will obviously face some form of budget pressure if they do not do something ahead of it,” said Ifegwu
“The overall implications of AfCFTA are not going to be that massive in terms of revenue loss as compared to the benefits that AfCFTA will bring from what I have read. Some very important boards have said that the agreement is going to bring into Africa about 16 % increase in trade and that is about US$61.3 billion dollars annually and again when you compare it with the loss, which is said to be 4.1%, it means the benefits are more compared to the losses.”
He said the removal of tariffs on imported goods may seem as a loss on tax revenue of a country but it was an indirect benefit to the people of the country.
“Countries should intensively look at what form of strategic advantage they have over other countries, and try to maximise that opportunity to boost their presence in the free trade environment. In that space you have to equally think about the general benefit that the free trade is going to bring to the countries.
“For example, if you liberalise trade in goods that are imported into your country, you are definitely going to reduce the price of the goods to your citizens. It means the citizens will be actually benefiting from the agreement which means you will be basically distributing the money that the government would have generated among the citizens who are paying lower for those goods instead of paying the higher prices they used to pay when the tariffs were added,” said Ifegwu.
In a separate interview, Southern and Eastern African Trade Information and Negotiations Institute (SEATINI), Uganda country director, Jane Nalunga, said, while AfCFTA will have a negative implication on tax revenue, on the other hand it brought about opportunities.
“AfCFTA is the largest treaty on trade globally, but by launching it, it doesn’t mean that people are going to benefit automatically, because it comes with its own challenges as well,” said Nalunga.
“The challenge is that because we are opening up our markets, we are automatically going to lose tax revenue because the moment you are opening up, it means you are reducing tariffs on products that are coming into your country. On the other hand, because the products are going to be free from tariffs it means they are going to create competition with the local products. So it means that if you are going to benefit from a broader market, you need to increase your production so that you also take your products in those other markets.”
She said to compensate the revenue loss brought about by AfCFTA, countries should optimise the benefits of the agreement and produce more of the goods that they have a competitive advantage.
“For example, in Uganda we produce coffee, very good coffee, so we need to produce more coffee of good quality and send it all over. The markets are there so we need to optimise the opportunities. That way, we will be able to generate resources and revenue at the national level as a country and also at the household level,” she added.