Tax competition among African countries poses a significant challenge to achieving tax justice and equitable economic development across the continent. This issue stems from the race to attract foreign direct investment (FDI) through offering increasingly generous tax incentives and concessions, often resulting in a 'race to the bottom' where countries lower their tax rates to attract multinational corporations (MNCs).
A report from Tax Justice Network Africa and ActionAid International shows that $2.8 billion is lost each year due to tax incentives in the four East Africa Community (EAC) members Kenya, Uganda, Tanzania, and Rwanda. At the same time, all EAC member countries are struggling to deliver the public services that their citizens demand. Removing excessive tax incentives could raise more revenue for desperately needed public services such as health, education, and infrastructure.
This not only undermines the fiscal sovereignty of nations but also perpetuates a system where MNCs exploit legal loopholes to minimise their tax liabilities, depriving African governments of crucial revenue needed for essential public services such as healthcare, education, and infrastructure development.
TJNA advocates for the implementation of comprehensive regional and continental tax policies to address the harmful effects of tax competition. This includes fostering collaboration among African countries to harmonise tax policies, eliminate harmful tax incentives, and establish minimum tax standards for MNCs operating in the region.
TJNA also emphasises the importance of increasing transparency and information exchange among tax authorities to combat profit shifting and tax evasion effectively. By promoting fair taxation practices and ending the race to the bottom, African countries can create a more conducive environment for sustainable economic growth while ensuring that all corporations contribute their fair share to the societies from which they profit.
