Despite some regional governments taking a few steps to curb loss of revenue, a new report indicates that four of the East Africa major economies could be losing up to $2 billion (Shs6.7 trillion) every year to unwarranted tax incentives.
According to the report, Uganda alone loses around $370 million (Shs1.2 trillion), Kenya around $1.1 billion (Shs3.7 trillion), and Rwanda up to $176 million (Shs593 billion), with Tanzania taking the remaining balance. This revenue loss would amount to up to $2 billion a year.
The generous tax breaks granted to especially corporations, mostly foreign firms, are in form of tax holidays, capital-gains tax allowances and royalty exemptions.
Massive sums lost to such offers are an equivalent of what is required to fund the 2016/17 national Budget of Rwanda.
And for Uganda’s case, it is about the total Budget allocated for key ministries such as agriculture, health, and works and transport.
“Evidence gathered suggests that collectively, the four east African countries (Kenya, Uganda, Tanzania and Rwanda) could still be losing around $1.5 billion (Shs5 trillion and possibly up to $2 billion a year (Shs6.7trillion),” the report, entitled ‘Still Racing towards the Bottom? Corporate tax incentives in East Africa,” reads in part.
The new report by Tax Justice Network – Africa and ActionAid, launched last week in Dodoma, Tanzania, emphasised the figure is exceedingly estimated and may well be short of reality as accurate reliable data in most cases does not exist for all incentives given to foreign firms.
Importantly perhaps, the Tax Justice Network and ActionAid statement noted that the $2 billion a year is less than the $2.8 billion from the 2012 report, reflecting positive development by the EAC governments in taking some steps towards reducing tax incentives, especially those related to VAT.
According to Yaekob Metena, ActionAid Tanzania’s Country Director: “Though there have been improvements in recent years in addressing the issue, governments in East Africa continue to give away domestic resources in tax incentives, funds that could pay for the regions’ education and health needs and meeting the development objectives.”
It also emerged that giving tax incentives fuels competition at the EAC level, and derailing any meaningful progress towards regional harmonisation of tax policies as well as undermining integration.
The report calls for East African governments to review the tax incentives they are granting with a view to abolishing all unproductive incentives.
And any incentives that are determined to be effective should be targeted at achieving specific social and economic objectives that benefit East African citizens.
Speaking last week at the SEATINI post-Budget analysis, the commissioner for tax policy at the Ministry of Finance, Mr Moses Kaggwa, said government is increasingly wiping out tax exemptions and only provide incentives in selected cases.
According to the report, In Tanzania, revenue losses from tax incentives given in 2014/15 were about $790m (about 2.6trillion); although this figure predates the new VAT law which is claimed will result in extra revenues of US$500(about shs1.6trillion) million.
Kenya, the amount of revenue lost through tax incentives is likely to be near the KShs100 billion ($1.1b or Shs3.7trillion) a year level.
In Ugandan, it remains unclear how much Uganda is losing to tax incentives since government figures do not appear to provide full figures, but the amount is likely be around $370m (about Shs 1.2trillion).
In Rwanda, estimates suggest that Rwanda is losing between Rwf 87 billion ($115m) and Rwf123 billion ($176m or Shs593billion) a year.
Source: Daily Monitor