Thursday, July 28, 2011

Scrap tax incentives, E. African civil society, IMF suggest

Following TJN-Africa's organisation of a round table discussion which we recently blogged, the event has now happened. Uganda's Daily Monitor covered it:
Civil society organisations want East African governments to scrap tax incentives as a stimulus for investment inflows and development accelerator. Speaking during a roundtable discussion in Nairobi, Kenya on Wednesday, activists said incentives hinder the entry of revenue and have no empirical results to prove their efficacy and impact to investment.

They argue that the incentive regimes in the EAC are also an obstacle to integration and could lead to a “race to the bottom” as member states compete to give incentives in the name of attracting foreign direct investment (FDI).
TJN, which was an organiser of the event, had plenty to say, as the story notes. The position was broadly supported by an IMF representative too:
Mr Ragnar Gundmundsson, the International Monetary Fund resident representative in Kenya, said: “Although incentives are popular in Africa as a stream for attracting investment, economists are increasingly becoming skeptical about their impact.”

“There is very little impact of tax incentives in the absence of other interventions,” he said.

According to Mr Gundmundsson, EAC member states have to address other concerns including infrastructure and strengthening the rule of law instead of solely relying in incentives.
As we have noted, the IMF, for all its failings, does seem to be saying a few more sensible things about tax than it used to. For more on this topic, see this research on how tax competition is affecting developing countries.


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