Date
DATE: TODAY 28TH JULY 2011
TIME: 12.00 NOON
VENUE: RED COURT HOTEL, NEXT TO RED CROSS, BELLE VUE, SOUTH C NAIROBI
HIGH LEVEL PARTICIPANTS: MR. JOHN NJIRAINI-KRA AND TOP LEVEL EAC GOVERNMENT OFFICIALS
(Nairobi, 27 July 2011) East African countries must stop giving foreign investors tax breaks and other tax-free incentives if they are truly going to tackle poverty and take charge of their economies, Actionaid and the Tax Justice Network -Africa warned today.
The two civil society organizations commissioned studies in four East Africa Community (EAC) countries, (Tanzania, Kenya, Uganda, and Rwanda) to assess the impact of tax incentives in development policy.
The studies found that poor countries, including those in East Africa, have offered a range of tax incentives, such as tax holidays, to attract foreign direct investment. However, the past 10 years of private sector-led economic growth has failed to deliver rapid economic growth, create jobs, or, most glaringly, generate sufficient revenue to meaningfully reduce poverty.
The Rwanda study alone revealed that in 2008 and 2009 the country lost over $234millions due to tax incentives and that every year about a quarter of its potential tax revenue was lost to tax incentives and exemptions given to businesses to attract private sector investment.
ActionAid Rwanda Country Director, Josephine Uwamariya said:
“The money lost to tax breaks in Rwanda would more than double spending on health, education and food security,”
“$234 million amounts to 14 per cent of Rwanda’s potential annual budget.
“Whilst aid is absolutely critical to African nations, on its own it will not put an end to poverty. This is why it is essential that African governments look for innovative sources of funding closer to home, like effective tax systems.”
Governments should now consider bolstering their domestic resource mobilization, which would mean maximizing rather than forfeiting tax revenues. The aggregate impact of countries in the same region with the same general economic features providing investors with the same range of incentives can quickly lead to harmful tax competition, or the ‘race to the bottom,’ that results in unnecessary net revenue loss for each country—revenue that could have been used to finance essential public goods and services.
Vera Mshana, TJN-A Policy & Advocacy Officer said:
“As the call for increased domestic resource mobilisation strengthens across the globe, the time is ripe for East African countries to critically consider the value addition of continuing to pay investors through incentives to engage in economic activities in their countries, rather than receiving taxes due from them as a way of meaningfully improving people’s lives. And, offering tax incentives as Band-Aid is not only an expensive short-sighted option, but also provides no concrete solutions to underlying economic problems.”
ActionAid, TJN-A and their partners advocate for regional cooperation to reduce tax incentives – a kind of multilateral disarmament to stop a race to the bottom that erases most of the benefit of economic investment. We are glad the East African Community has begun taking steps to avoid tax competition, and will work to ensure that a far-sighted policy is adopted and enforced in all EAC countries.
The meeting includes regional participants and national policy makers, representatives from revenue authorities and relevant government ministries, as well as civil society actors, media, SME Associations, policy analysts engaged in tax policy and administration, and private sector tax practitioners. Participants will critically review the findings and recommendations of the final Rwanda country report, and the draft country and regional reports for Tanzania, Uganda, Kenya, and the EAC respectively.
For further information and interviews:
Sulah Nuwamanya, on +254704850664 0r +250788843319 or Sulah.nuwamanya@actionaid.org
Sandra Kidwingira, on +254 728 279 368 or sandra.kidwingira@taxjustice.net