Finance minister urges Africa to boost earnings with taxation

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Kemi Adeosun, the Minister of Finance, on Thursday told African countries to see taxation as an initiative to diversify their economies and boost their national earnings

At the Ninth General Council meeting of the West African Tax Administration Forum (WATAF), Adeosun said that global economic crisis had exposed the risk African economies faced by depending on debt financing, development assistance and Foreign Direct Investment (FDI).

The minister at the meeting themed, “Extractive and telecommunications industry taxation: Country experiences and best practices’ said the ensuing crisis had shifted attention to the need for domestic resources mobilisation on the African continent.

Adeosun represented by Larai Shuaibu, Director, Technical Services, Federal Ministry of Finance said that Sub-Shara African countries still mobilised less than 17 per cent of the Gross Domestic Product (GDP) in tax revenue.

According to her, the low taxes to GDP mobilisation of African countries can be attributed to several factors.

She said such factors include improper pricing of goods and services by Trans National Corporations (TNC), general tax incentives and low government share of revenues from extractive industries.

“Taxation remains a veritable source of revenue. A large source of missed tax revenue for African countries comes from transfer pricing, as a result of Trans National Corporations (TNC).

She said the second important tax gap in African countries could be related to tax incentives.

“Government from low income countries offered various tax exemptions with the aim of attracting investors and fostering economic growth; evidence shows that tax incentive is not an important driver of foreign investment.

“ By providing tax incentives, governments in low-income countries forego substantial revenue that can be used to foster the elements that drive foreign investment, notable infrastructure and education.

“It is estimated that the losses of revenue by the developing countries from tax exemptions for investors are around 20 per cent of actual revenue collections,” Adeosun said.

She said the third cause of tax revenue losses could be related to revenues generated in extractive industries.

According to her, the IMF estimated that governments are generally able to retain only about 30 per cent of the revenue in the mining sector.

She said that arrangements in the extractive sector were often ad hoc and not very transparent.

The minister said it was crucial to design fiscal regimes and rent sharing agreement to ensure fair amount of revenue for the producing country.

She said apart from the three main sources of missed tax revenues, African countries faced a number of constraints of political, administrative and economic nature.

Tunde Fowler, the Acting Executive Chairman, Federal Inland Revenue Service (FIRS), said Nigeria in particular had experienced a downward drop in revenue from crude oil.

Fowler said Nigeria now depended increasingly on tax revenue to meet the shortfall of all tiers of governments obligations.

“While talking about diversifying our revenue away from resources dependence in the past, period like this provide an opportunity for us to put words into actions.

He said the forum provided an opportunity for knowledge and experience sharing and encouraged peer review.

Femi Edgal, Assistant Director of FIRS, who represented the African Tax Administration Forum (ATAF), said illicit financial flows undermined domestic resources mobilisation.

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