COVID-19 places African governments at crossroads to save fragile economies

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■ Sharon Kavhu

 

Windhoek The COVID-19 pandemic has left African governments at crossroads in terms of policy measures to stem the impact of the pandemic on their fragile economies, Tax Justice Network-Africa (TJNA) has said.

On one hand the countries are trying to consolidate their revenues to support emergency measures resulting from the pandemic; yet on the other hand they are under pressure to provide tax stimulus relief to businesses, private sector and citizens directly as a cushion from the inescapable economic downturn.

Moreover, the governments still require tax revenue to use for the interventions in response to the virus; and yet businesses are either shutting down or operating on low efficiency due to the lockdown and social distancing measures in place to fight the pandemic.

Many of the steps being undertaken in the fight against the spread of the pandemic are limiting African governments from collecting tax revenue from international trade.

In an interview, TJNA Executive Director Alvin Mosioma said many African countries are largely raw material exporters and with the current COVID-19 crisis, tax revenue on exports is adversely affected.

Currently most commercial flights are on ban and some borders are closed due to the pandemic.

Mosioma said the crisis is also worsened by the suffocating tourism sector which is triggered by the grounding of international tourists due to COVID-19 measures. Domestic tourism in Africa does not make a significant contribution to GDP’s as compared to international.

“The majority of African workers are in the informal economy, which means that many are not benefitting from the corporate and personal income tax reliefs being provided by governments. The tax revenue systems in many countries had been compromised by the weakened capacity for tax collection. They have been immensely affected by the tax incentives that were put in place to attract investment, weak policies and outdated laws,” said Mosioma.

He claimed that the COVID-19 crisis has exposed the structural issues that have been in existence even before the virus.

“African countries are reeling from the neoliberal thinking that saw many governments privatize public services under the structural adjustment programmes pushed for by the Brettonwoods institutions. Many countries in our region were already facing significant budget deficit prior to COVID-19 crisis, the debts could not allow sustainability in economic growth over the years,” he said.

“In many African countries  the public sector was already in distress  with key sectors such as education, and health severely underfunded.. As such, the response for the region to the pandemic was already compromised by the state of the essential services in most countries.”

He urged African governments to ensure people-centred policy responses that are rooted in the intersectionality of lived experiences.

Mosioma added, “The governments should re-centre and revalue the care economy by ensuring that tax policies recognise, represent, reduce and redistribute unpaid care work and the creation of universal care, provision of immediate assistance and social protection systems for vulnerable populations working in the informal sector and those were living informal settlements.”

He said as part of the solutions to the issues around African economic structures, TJNA urges the governments to repeal value-added tax, consumption taxes and ensure the provision of tax credits to SMEs as well as low-income earners.

He added, “We urge International Financial Institutions (IFIs)- the World Bank and International Monetary Fund to cancel sovereign debt for debt-distressed African countries to give government’s sufficient fiscal space to respond to the current crisis, in compliance with human rights standards. The African governments should also progressively raise and spend tax revenues to address the impacts of the crisis, including by gender-responsive budgeting.”

He said there is a need for African governments to evaluate and assess the tax incentives and exemptions being given to non-essential corporations by using a cost-benefit analysis to scrap any wasteful tax breaks that are a drain on public coffers.

While the region has been battling with issues of Illicit Financial Flows (IFFs), the TJNA Executive Director also urged governments to promote domestic and regional tax transparency measures to identify and curb IFFs.

Mosioma said there are trillions hidden in offshore tax havens that must be brought back to African countries and help them rebuild their economies post COVID-19.

 

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