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Posted on Tuesday, 10 June 2014 15:38

Is Africa selling itself short with tax holidays and other breaks?

Many african governments attract foreign direct investment with tax breaks. However, a scathing new report criticises sierra leone for offering too many fiscal advantages to multinationals, resulting in underfunded public services.

 

Yes African governments have not been benefiting sufficiently from the tax revenues that their natural resources would allow. Something fundamental has to change in governments' approach and international tax rules. Unless this happens, African governments will be losing out on much-needed tax revenues. It is not a case of companies not paying any tax, it is that they are not paying the level they should be paying. Instead, they go to extraordinary lengths to reduce their tax bills. While tax rates are important to companies deciding where to locate their operations, it is not the top priority. Companies are more concerned with the political stability of a country, whether it has skilled manpower and an educated workforce. Countries must provide an investment climate which is attractive to multinationals, but one in which they can benefit too, rather than obsessing about economic policy peddled by the International Monetary Fund and the World Bank. In theory, tax and non-tax benefits such as technology transfer should filter down, but in practice it does not happen. Income taxes from staff do support a country's economy – but look at Zambia. Here 70% of the country's tax revenue comes from income tax. ● Savior Mwambwa, policy and advocacy managern Tax Justice Network - Africa.

 

No Lowering the levels of corporate tax is a crucial element in attracting investment. Look at the case of Mauritius, which has seen its economy soar on the back of increasing foreign direct investment as its corporate and individual tax rates have fallen from 25% to 15%. Google has recently been in the news because of the tax it pays in Ireland. People forget that it is not just the corporate taxes that support the economy. The salaries that Google pays to staff in Ireland are subject to income tax. The same is true of Mauritius. Low tax rates attract multinational firms, and they in turn create a demand for further services which can be satisfied by the local market, growing the economy. If you take all these corporate tax revenues and income tax revenues into account, that makes it a totally different story. If you lower your tax rates, it often increases your tax take as people concentrate on doing business rather than getting involved in elaborate tax dodges. If a country needs to boost its infrastructure, it is better to attract private investors. All too often governments get involved with projects for which the economic case in not justified. Yes, there is an issue with governments being out-gunned in negotiations with large, rich multinational firms, but that is the time when they should hire some astute negotiators to represent them. ● Eustace Davie, director, Free Market Foundation.



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