Remove Tax Exemptions in Africa, Says IMF

March 22, 2011 International Tax CooperationTaxation in Kenya

kenyaAfrican nations need to reexamine their own tax systems, and remove currently instated tax exemptions and inherent inefficiencies, in order to raise revenues and fund development.

Senior tax officials from over 40 Sub-Saharan nations have met together on March 21st at a conference jointly organized by the International Monetary Fund (IMF) and the government of Kenya, and held in Nairobi. The two day event was intended to be used to hold discussions on tax revenue improvement in the developing nations of Africa, and is part of the IMF’s ongoing program of technical assistance for developing nations.

Speaking about the importance of efficient revenue collection systems, the IMF’s Director of Fiscal Affairs Carlo Cottarelli opened the ceremony, saying, “…effective revenue collection can unlock vital resources for African countries to tackle the root causes of poverty and promote their long-term development in an equitable and transparent manner.”

At the conference the greatest amount of time was devoted to discussion around the idea of removing the wide range of tax exemptions available in African nations, both in regards to local Value Added Taxes (VAT) and for corporate investors. The IMF’s Director of Fiscal Affairs Carlo Cottarelli, explained the Fund’s view on tax exemptions, saying, “…the importance of these incentives is much exaggerated in respect to what they actually yield,” and “…creating a good business environment, fighting corruption, these are more effective at attracting investment than incentives.”

The IMF led several discussion regarding issues faced by the majority of the Sub-Saharan nations. The Fund claimed that that exemptions made available in VAT systems create unnecessary complications and confusion for tax payers, and should be removed. Talks were held on methods that could be used to ensure that governments receive adequate bargaining power and were not exploited during negotiations with large multinational resource extraction firms. Governments were also advised to consider the issue of compensation for the revenue losses arising after the proliferation of trade unions in Africa. The delegates were told that alongside revenue improvement efforts, care should be taken to ensure that taxpayers are protected from harassment of tax officials, and that all taxes are administered equitably.

Photo by kevinzim