Changes in international tax laws will see Africa stand on its own feet soon

The era of aid is fast fading and new sustainable options have come of age. Moving reliance from aid to domestic resources increases legitimacy and accountability of a government and this makes direct contribution towards enhancement of welfare of the citizenry.  

By Kennedy Onyonyi

The deadline for achievement of Millennium Development Goals, formally endorsed in Mexico in 2002, is months away, yet poverty remains untamed inspite of gains made through substantial resource commitment by development partners.

This has put to question the effectiveness of donor support as the key driver in facilitating sustainable development. There is a need, therefore, to seek alternative options to get poor countries out of this lamentable state.

It is against this backdrop that the First High-Level Meeting on Global Partnership for Economic Development Co-operation will be held in Mexico in mid-April. A notable inclusion in the meeting’s agenda is Domestic Resource Mobilisation, which will be the focus of one of the five plenary sessions.

In her book Dead Aid, Dambisa Moyo makes a compelling case for a new approach in Africa. She illuminates how over-reliance on aid has trapped developing nations in a vicious cycle of aid dependency, corruption, market distortion and further poverty, leaving them with nothing but the need for more aid.

The realisation by world leaders that there a is need to change tact in favour of self-reliance attests to this fact.

The theme of the Mexico conference hinges on the premise that no country should depend on others’ resources for its own development. The good news is that Africa is alive to this fact and is gearing towards taking a leap of faith towards self-reliance through enhanced domestic resource mobilisation.

Last week, the African Tax Administration Forum brought together tax administrations from 36 African states, key development partners and the academia, in Johannesburg, to chart the future of the African continent, in an effort to effectively mobilise domestic resources for sustainable development.

The main challenge facing the continent in its effort to mobilise domestic resources is tax base erosion arising from inappropriate tax incentives, ineffective taxation of natural resources and profit shifting through controlled transactions.

Profit shifting refers to schemes by multinational enterprises to minimise or eliminate corporate tax liability by shifting their profits to a location where they are conferred a favourable tax treatment.

This effectively erodes the tax base of the host country, resulting in loss of tax revenue, compromise of tax sovereignty and unfairness in tax treatment as taxes ought to be paid where economic activity takes place.

These challenges are precipitated by the fact that existing international tax rules have not kept pace with changing business environment while access to information required to tame this vice remains an uphill task.

Africa is, therefore, rooting for appropriate changes in international tax rules and deepened co-operation in availing and sharing relevant information.

Taxation of natural resources poses unique challenges. Speaking at the International Conference on Taxation of Natural Resources held in Victoria Falls last September, Commissioner General of Zimbabwe Revenue Authority Gershem Pasi stated that that “Africa is too rich to be poor.”

His assertion was that the abundance of natural resources can eradicate poverty. The reality is that massive natural resource booms have not only crippled non-resource export sectors and inhibited productive economic activity, but also fostered corruption and weakened accountability.

The tax regime of the extractive industry is intended to ensure international competitiveness in attracting investors, but not at the expense of government revenue.