Report on tax competition in East Africa

This article came out earlier and we remarked on it, but probably didn't do it justice. It is an important report produced by Tax Justice Network Africa and ActionAid, which finds that Kenya, Uganda, Tanzania and Rwanda are losing $2.8 billion each year through their use of tax incentives such as tax holidays for foreign businesses. These tax incentives are promoting harmful tax competition in the region, and are anyway not needed to attract investments. Members of the EAC should cooperate to eliminate excessive tax incentives, ensure greater transparency for any that remain, and promote coordination within the East African Community (EAC) to prevent harmful tax competition.

The press release is as follows:

EAST AFRICA LOSES $2.8 BILLION A YEAR FROM TAX EXEMPTIONS TO FOREIGN INVESTORS

Wednesday, 11 April 2012

Tax Justice Network Africa and ActionAid launch new report on tax competition in East Africa:

A Race to the Bottom? Tax Incentives and Revenue Losses in Uganda

(Kampala, 10th April, 2012) In Uganda 75% of the population lives on less than two dollars a day and holds one of the world’s highest population growth rates with over 3% per year, yet in 2009/10 the country lost approximately 2% of its GDP in tax revenue amounting to $272 million dollars that could be used for essential public services such as health, education and infrastructure.

In a report launched by Tax Justice Network Africa and ActionAid titled Tax Competition in East Africa: Race to the Bottom? reveals that as East African governments compete to offer incentives to attract investors with reduced tax rates and/or tax holidays, this trend reduces the revenue available for desperately needed public services in the region and also shifts the brunt of the tax burden to the ordinary tax payers - individuals who pay taxes on their incomes.

Sophie Kyagulanyi Actionaid Uganda’s Governance Coordinator explains:

“The “race-to-the-bottom” is the current tendency by our leaders to slash tax rates and ease regulatory requirements for foreign investors as a means to attract large companies to do business in the region.”

“The poor are the ones bearing the biggest burden of these tax incentives because revenue for public services is reduced. The only ones benefiting from “tax competition” are large corporations.”

The key findings of the study conducted in East Africa reveal that:

• Removing excessive tax incentives could raise more revenue for public services such as health, education and infrastructure.
• The primary beneficiaries of these tax incentives are large domestic firms and foreign multinational companies.
• Tax incentives are not needed to attract Foreign Direct Investment (FDI) in East African countries. The IMF, World Bank, OECD, UN, and African Development Bank are among the institutions that endorse this conclusion.
  

ActionAid, SEATINI (Southern and Eastern African Trade Information and Negotiation Institute), Tax Justice Network (TJN) and Uganda Debt Network launched the Ugandan Report: Tax Competition in East Africa: A Race to the Bottom? Tax Incentives and Revenue Losses in Uganda at 8:30am on Friday 13th April 2012 at Hotel Africana to urge the East African Community member countries to remove tax incentives to attract foreign direct investment.

Joined by representatives from the East African region, revenue authorities, relevant government and policy makers, as well as members from civil society, small and medium enterprises and policy analysts engaged in tax policy and administration, they call for the promotion of transparency in the granting of tax incentives and better coordination among countries in the region to address harmful tax competition.

ENDS
For more information and interviews contact:
Ssanyu Kalibbala +256 (0) 783 727 717 or Ssanyu.kalibbala@actionaid.org

Note: TJN has slightly modified this release, to take account for the later timing of this blog.

To be added to our tax competition page.