Global tax regime not favourable to Africa

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Prosper Ndlovu

AFRICA needs to move from being reactive to changes in the global tax agenda and be more proactive towards securing a position of maximum benefit from international tax policy and administration.

This requires Africa to urgently come up with a clear roadmap to determine favourable tax policy decisions that will help stem rampant illicit financial outflows, estimated at $50 billion year, and improve domestic resource mobilisation instead of following propositions from other global players.

This emerged during a high-level regional tax policy dialogue organised by the Africa Tax Administration Forum (ATAF) in Kigali, Rwanda last week. Aimed at reinforcing Africa’s position to benefit from the global tax agenda, the event drew participation from over 120 delegates who included ministers of finance, African tax administrators from 21 countries, legislators, civil society, academics, business, regional and international stakeholder bodies.

In a summary report issued at the end of the gathering, ATAF said participants welcomed the call for action and applauded efforts towards initiating taxation regime changes in Africa. They agreed that legislators, ministries of finance and tax administrations need to immediately start more closely working together to design new tax policies for Africa and rapidly build tax administration capacity.

Rwandan Minister of Finance and Economic Planning and host, Dr Uzziel Ndagijimana, said it was high time Africa starts to determine the tax policy and administration decisions it needs to make in the context of the global tax agenda if it is to effectively eradicate and improve domestic resource mobilisation, which is central to development on the continent.

“Africa should start taking action now not later and to build more effective tax regimes. The financial crisis at the end of the last decade and the digitalisation of the global economy had highlighted that the global tax rules were not working effectively.

“It is vital that Africa is not left behind in this transformation of tax systems and grasps this unique opportunity to tax more effectively and start to fund its own development needs through its own tax revenues,” said Dr Ndagijimana.

The meeting noted with concern that African tax to Gross Domestic Product (GDP) ratios were far below those of OECD countries and stressed the need to improve this tax position. To do so it must act now to improve both its tax policy making and the capacity of its tax administrations. They called for more coordinated responses, involving a spectrum of players, for Africa to tackle tax policy and administration loopholes.

“There is a need for a framework to be established where African tax issues can be discussed and addressed,” reads the report.

Although ATAF has been commended for its work in influencing the global standard setting processes, the meeting noted the work has largely been of a reactive nature due to existing resource constraints. “There is now a need to step up this work and for Africa to stop following and start initiating change in the global tax agenda”.

The African Union, ministries of finance, tax administrations, civil society and business have since been urged to participate actively in this work and influence its outcomes to ensure they are fit for purpose in Africa and assist in improving domestic resource mobilisation on the continent. The African Union in its July Summit endorsed ATAF as the lead technical advisory body for Africa on this work as it has a proven track record of success in influencing the global tax agenda.

Participants suggested that ATAF should monitor and evaluate progress on the global tax work carried out by Africa and called on the regional tax body to set targets for that work. To achieve some of these ideals, participants proposed that Africa countries will need to pool their resources to create the capacity needed to deal with highly complex technical tax policy issues.

“Africa must have an African inter-government tax policy body with ATAF as its technical support. Participants called for greater innovation in African tax co-operation and welcomed the recent initiative of the African Innovation Fund,” reads the report.

The meeting called on ATAF to assist African countries to undertake research on their economic profile and tax base to ensure each country is in a position to make a fully informed decision on its strategy for setting its objectives to improve its domestic resource mobilisation.

The meeting called on ATAF to broaden the scope of the technical assistance it provides to its members in partnership with the various development partners. The technical assistance should be holistic in its approach covering all the various taxes that are identified by the country as important contributors to its tax base. Data gathered for each country should be used to inform the scope of the work.

 

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