Civil Society urge East African Legislative Assembly members to address harmful tax competition

Civil Society urge East African Legislative Assembly members to 
address harmful tax competition 

Civil society representatives from Burundi, Tanzania, Kenya and Uganda this week met with the East African Legislative Assembly (EALA), Committee on Communications, Trade and Investments (CTI) in Bujumbura
to discuss harmful tax competition between their countries that deny
governments critically needed revenue. 

The representatives, who are all members of the Tax Justice Network –
Africa (TJN-A), urged the the East African Community legislators to
focus fresh attention on taxation and look at ways in which more
domestic resources can be raised and channeled to provision of
improved public services and development. 

In particular, TJN-A members advised that improved tax policies should
focus on the reduction in the use of tax incentives designed to
attract investments to a country. “The popularity of these incentives
is due, firstly, to the assumption that corporations and other
investors make decisions about where to invest, or even what business
to engage in, in large part on the basis of calculations of the tax
obligations they would incur, and secondly on the competition that
develops among countries, particularly those in the same region, for
investment, particularly from foreign investors,” reads part of the
briefing not prepared for the legislators. 

The tax justice advocates believe that there is enough evidence to
demonstrate that even though companies and investors lobby for
incentives, tax bills are a relatively minor consideration in their
investment decisions, and that the tax competition among East African
countries is costing them an unacceptable volume of revenues that
would be crucial for improving public services and advancing
development plans. They cite a 2006 report by the IMF, focusing on
East Africa, that notes that “investment incentives’ particularly tax
incentives – are not an important factor in attracting foreign
investment .” More important factors are good quality infrastructure,
low administrative costs of setting up and predictable macro-economic
policy, the IMF study advises. Similarly, a 2010 report found that the
main reasons for firms investing in Kenya are access to the local and
regional market, political and economic stability and favorable
bilateral trade agreements. Fiscal concessions offered by Export
Processing Zones (EPZs) were mentioned by only 1% of the businesses
sampled, TJN-A notes. 

The Tax Justice Network – Africa believes that the EAC is best placed
to break the stalemate in which no East African country wants to risk
being the first to withdraw some of its incentives, for fear that
other countries will hold back in order to benefit from investors
looking for greener pastures. Although that fear is probably
misplaced, it is precisely in this sort of situation that a regional
body like the EAC in invaluable, for it requires a decision that will
only work if it is made collectively. 

The EALA CTI committee members received the tax justice advocates’
message warmly and were keen to learn more about the harmful nature of
tax competition in East Africa and more particularly, what they could
do address the problem. TJN-A and Actionaid International commissioned
studies on the impact of tax incentives and exemptions in each of the
EAC countries under the collective title ‘Tax Competition in East
Africa: a race to the bottom?’