PHOTO CREDITS: The Standard

By

DR.TERRA TAIDIMU

The economic stability of a country is heavily reliant on resources mobilised through taxation. Tax revenues keep the economic wheel on the move.

However, tax crimes and related malpractices dent tax collection efforts thereby occasioning substantial loss of government revenue. Tax malpractices are a global and regional pain.

A report by The Africa Initiative dubbed “Tax Transparency in Africa 2020”, for instance, estimates that Africa suffers revenue loss of around $40 to $80 billion every year to tax evasion. This amount can comfortably fund key projects.

Such statistics are the reason authorities are working round the clock to clip tentacles of tax malpractices. The approach adopted by the Kenya Revenue Authority (KRA) is multifaceted and ranges from automation of processes to leverage on intelligence gathering and management. Although automation of processes is key in reducing human intervention, a major breeding ground for malpractices, intelligence gathering and management is a major boost.

A major setback to this process is unwillingness by various stakeholders such as the public to volunteer information to relevant authorities. The failure by members of the public to report tax evasion, corruption and other malpractices has been a concern. According to a survey conducted in 2019 and published in 2020 by Transparency International Kenya, majority of Kenyans do not report corruption cases.

The Corporate Tax Haven Index is a ranking of jurisdiction most complicit in helping multinational corporations underpay corporate income tax. The Corporate Tax Haven Index thoroughly evaluates each jurisdictions tax and financial systems to create a clear picture of the world’s greatest enablers of global corporate tax abuse, and to highlight the laws and policies that policymakers can amend to reduce their jurisdiction’s enabling of corporate tax abuse.

Jurisdictions are ranked by their CTHI value (Corporate Tax Haven Index value), which is calculated by combining a jurisdiction’s Haven Score and Global Scale Weight. A jurisdiction’s Haven Score is a measure of how much scope for corporate tax abuse the jurisdiction’s tax and financial systems allow and is assessed against 20 indicators. A jurisdiction’s Global Scale Weight is a measure of how much financial activity from multinational corporations the jurisdiction hosts. Combining a jurisdiction’s Haven Score and Global Scale Weight gives a picture of how much of the world’s corporate financial activity is put at risk of corporate tax abuse by the jurisdiction.

Welcome to the third edition of the #Youth4TaxJustice Newsletter, a newsletter which is designed to share strategies on how youth can or have engaged in fiscal justice issues in Uganda.

This year, the COVID-19 pandemic created a major hindrance towards youth engagement in fiscal governance processes at the national and sub-national level. With a several month lockdown and limitation on public gatherings, majority of the initiatives took place during the last half of the year.

In recognition of the fact that the youth are a group whose voice is critical in fiscal governance processes, we continue to relay strategies on how they can voice their opinions on key issues arising and how prudent public finance management can be used as a tool to address these issues.

In this issue of the newsletter, we explore the impact of the COVID-19 pandemic on youth businesses and how members of the Tax Justice Club at Kampala International University were able to conduct a Tax Justice awareness campaign within their university. Finally, we feature a showcase of youth engagements in Tax Justice Events during 2020.

PHOTO CREDITS: FACTI

Report of the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda

The High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) was convened by the 74th President of United Nations General Assembly and the 75th President of the Economic and Social Council on 2 March 2020.

The objective of the FACTI Panel is to contribute to the overall efforts undertaken by Member States to implement the ambitious and transformational vision of the 2030 Agenda for Sustainable Development. It is mandated to review current challenges and trends related to financial accountability, transparency and integrity, and to make evidence-based recommendations to close remaining gaps in the international system.

The Panel is co-chaired by H.E. Ibrahim Assane Mayaki, former prime minister of Niger, and H.E. Dalia Grybauskaitė, former president of Lithuania. The members include Annet Wanyana Oguttu, Benedict Schilbred Fasmer, Bolaji Owasanoye, Heidemarie Wieczorek-Zeul, Irene Ovonji-Odida, José Antonio Ocampo, Karim Daher, Magdalena Sepúlveda, Manorma Soeknandan, Shahid Hafiz Kardar, Susan Rose-Ackerman, Tarisa Watanagase, Thomas Stelzer, Yu Yongding and Yury Fedotov. The Panel members have participated in a personal capacity and are not expressing endorsements or commitments on behalf of any institution with which they have a relationship.

The High-Level Panel on Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda came together as a diverse group of individuals from different backgrounds, experiences and national and regional contexts. Even if members of the High-Level Panel did not agree on every detail of the final report, consensus was reached on the vast majority of recommendations. And most importantly, the Panel is unanimous on the need to act to promote financial accountability, transparency and integrity for achieving the 2030 Agenda.

PHOTO CREDITS: The East African

By

JAMES ANYANZWA

East Africa’s grand plan of harmonising domestic taxes to eliminate harmful tax competition and promote the region as a single investment destination faces headwinds as partner states develop cold feet in agreeing on the uniform tax rules and rates for the six-member economic bloc.

A source close to the negotiations told The EastAfrican that the technical experts from member countries tasked with harmonising the varying tax rules and rates in the region have not held sessions for over a year after some member countries raised concerns over the plan to harmonise value added tax (VAT), Income tax and Excise tax which are considered critical sources of revenues for the regional economies.

The project that was conceived nine years ago in Kampala (Uganda) is yet to take root over differences by member countries on how the various tax rates — their main source of livelihoods — are going to be matched.

“The partner states have various tax levels, which means their tax rates are different, and so to agree on a common threshold was not easy. There was divergence of views for various reasons and of course revenues is one of them because the purpose of taxation is to raise revenue. There is a divergence at the partner states level on the tax rates,” the source said.

By

Brenda Osoro

Kenya’s mineral resources primarily contribute to the nation’s revenue through taxes paid by mining companies. According to government estimates, the extractives sector currently makes up just one percent of the country’s national income and less than two percent of total export earnings.

However, the landscape of both society and the extractives industry is rapidly evolving. Anticipated increases in mining discoveries and untapped natural resources are expected to significantly elevate these figures. Projections indicate that, with further exploration and development, the sector could contribute up to ten percent of the national income, positioning Kenya as a key mining hub in East Africa.

This presents a valuable opportunity for the country to leverage the sector for accelerated development, particularly in the aftermath of the COVID-19 pandemic. Kenya’s GDP is projected to contract significantly, falling from the initial estimate of 6.2 percent to 3.4 percent in 2020, as per the Central Bank of Kenya. In response, the government has implemented tax relief measures to stimulate businesses and alleviate the pandemic’s impact on individuals.

Given the compromised state of many revenue sources due to the pandemic, the extractives sector emerges as a potential major contributor. Revenues generated could support crucial sectors such as education, tourism, and healthcare, which have been severely affected by COVID-19.

However, despite the promising opportunities, substantial challenges accompany them. The fiscal policies governing the mining sector, including taxes and incentives, play a pivotal role in attracting long-term investments and maximizing revenues for the country. Kenya finds itself in a “race to the bottom,” with nations competing to offer tax incentives that diminish rates, ultimately reducing revenue potential.

This race has resulted in significant losses for the country. Striking the right balance in the fiscal regime is essential to attract investors without compromising tax collection. Additionally, foreign firms exploit double taxation agreements (DTAs), designed to prevent taxation on the same income twice, to reduce their tax payments legally.

A case in point is Tata Chemicals Magadi, Africa’s largest soda ash manufacturer, reaching an agreement for a 99% tax exemption and a reduced land rate of KES 150 per acre, causing substantial revenue losses for the county.

Closing loopholes in Illicit Financial Flows (IFFs) becomes imperative. Good governance is a crucial factor in domestic resource mobilization (DRM). Transparency International (TI) Kenya reports that corruption cases in the extractives sector often go unreported due to information gaps in legal frameworks and lack of confidence in relevant institutions.

Given the complexity of tax rules governing extractive industries, there is a pressing need for training and capacity building to ensure effective enforcement of these laws. Corruption not only deprives citizens of their national heritage but also hampers revenue collection, affecting essential service provision.

As the extractives industry is still in its early stages, operating within an unclear fiscal regime, there is a compelling need for a transparent and accountable financial system that aligns with sustainable development goals (SDGs).

In the context of the government’s focus on controlling and ending the humanitarian crisis caused by COVID-19, there is a collective effort needed to explore additional revenue streams, specifically from the extractives sector, to revive the economy.

The author is a Program Assistant at the East African Tax and governance Network.

Email: bosoro@taxjusticeafrica.net

COVER PHOTO CREDITS: GIZ

Kigen Kiplimo, conducted an interview with Ms. Rose Ronoh, Director of Trade Facilitation at Kenya Trade Network Agency (KenTrade) regarding the future of East African Community (EAC) under the African Continental Free Trade Area (AfCFTA). As of January 1, 2020: 54 countries had ratified the agreement; 34 countries had deposited instruments of ratification; and 41 countries had submitted tariff offers.

 AfCFTA is an economic cooperation founded in 2018, with trade commencing as of January 1, 2020. It seeks to create a single continent-wide market for goods and services and to promote the movement of capital and natural persons. AfCFTA is expected to boost intra-African trade as well as Africa trading position in the global market.

KIGEN KIPLIMO: Why is Intra-African trade important?

ROSE RONOH: Intra-African trade currently stands at around 13% of Africa’s trade while intra-European Union (EU) trade is at 60%. This shows that there is a gap and thus a potential that needs tapping. Additionally, many African countries are dependent on foreign aid and debt. Intra-African trade therefore provides an alternative by boosting trade, leading to increased government revenues and jobs.

KIPLIMO: How will AfCFTA affect the EAC? Will it undermine regional integration efforts?

RONOH: It will not affect much. AfCFTA builds on regional blocks like the EAC. If the regional blocks are more advanced in terms of custom union, the better. Africa Regional Integration Index (ARII) in 2020 ranked the EAC as the most integrated regional block in Africa. Therefore, I see no reason why AfCFTA would want to undermine the EAC.

KIPLIMO: There is anxiety in various quarters over the Kenya-USA free trade agreement by some EAC member states. With commitments to the AfCFTA will Kenya or any other EAC member state still be at liberty to enter into such agreements?

RONOH: Firstly, Kenya is a sovereign state and so are the other EAC member states. However, if any of the EAC member states feel that the KE-US free trade agreement is contravening the EAC agreement, they have every right to go to court. Notably, Kenya has extended an invitation to other EAC member states to be party to the US-KE free trade agreement.

KIPLIMO: Many African countries are dependent on primary goods. Economists argue that free trade areas lead to specialization due to competition. How will AfCFTA enhance structural transformation?

RONOH: AfCFTA is supported by the African Union which has various infrastructural programs to boost structural transformation. Furthermore, under AfCFTA, foreign investors will find it cheaper to set up industries in African countries then export to other African countries as opposed to exporting directly from their countries. This will increase the foreign direct investments for building industries as well as transfer of technology.

KIPLIMO: SMEs account for 80% of the continent’s business. Unlike multinational companies, SMEs lack the capacity to trade beyond borders. How will AfCFTA ensure that SMEs benefit?

RONOH: This is proving to be a challenge in many countries. There are various organizations that are carrying out different programs with the aim of enabling SMEs exploit this great opportunity. In Kenya we have the Micro and Small Enterprise Authority (MSEA). Continentally, there is the Nigerian based, Tony Elumelu foundation just to mention but a few.

Currently, I am working with the International Trade Centre (ITC) to develop a curriculum that will be used for capacity building and development of SMEs to enable them to benefit from AfCFTA.

Additionally, SMEs need to believe in their abilities and potential. They should not just think of themselves as small businesses rather as big businesses in progress.

KIPLIMO: How does a lady making sandals in Kariokor (A small-scale traders’ market in downtown Nairobi) know that she now has an opportunity under AfCFTA to export her sandals to Senegal or Botswana duty free?

RONOH: The implementation of AfCFTA majorly rests on the members. They need to sensitize their citizens on what AfCFTA is and how they can benefit from it. Recently, AfCFTA’s Secretary General, Mr. Wamkele Mene was in Kenya and met with President Uhuru Kenyatta where the President committed to a full implementation of the free trade area. Such commitments by heads of state are vital for the success of AfCFTA.

KIPLIMO: When do we expect to see tangible impacts from the implementation of AfCFTA?

RONOH: 2 years. AfCFTA is still at the policy stage. The fruits are not instantaneous. The EU for example took 5 to 10 years to yield results.

KIPLIMO: Some African countries are miles ahead of others in terms of economic development. How will AfCFTA ensure that the vulnerable countries will not be exposed therefore losing instead of gaining from AfCFTA?

RONOH: AfCFTA offers a lee way for such countries. There are seven countries that have requested to protect a higher percentage of their trade compared to what AfCFTA requires. Additionally, countries can utilize their comparative advantages where they produce more of what they can deliver cheapest and most efficiently.

However, there are countries that are experiencing conflict. In as much as I wish that they could get on board as quick as possible; the agreement must go on. Hopefully, if these countries see how their counterparts are moving forward, it may serve as motivation for them to resolve the internal conflicts and focus on trade.

KIPLIMO: I gather that AfCFTA is asking for a bigger percentage of a country’s trade than the EU does. How much trade do you deem substantive enough for a country to open?

RONOH: It varies from country to country. Some open their trade more than others while some open different sectors of their economies more than others. Under AfCFTA countries can spare 10% of their trade. They themselves choose which sector(s) to spare in the 10%.

KIPLIMO: As a Kenyan, which sector would you recommend that Kenya spares in the 10% and why?

RONOH: Agriculture. It contributes the highest to Kenya’s GDP. Majority of Kenyans depend on agriculture directly or indirectly for their income.

KIPLIMO: Does AfCFTA have the capacity to monitor what is now the biggest free trade area in the world (by number of countries) when it comes to rules of origin, trade protectionism among many other possible contraventions?

RONOH: AfCFTA started with a staff of 70 but it is building capacity as time goes by. The members also have a responsibility to watch out for contraventions by other members. Moreover, in the case of disputes, AfCFTA has established a dispute resolution mechanism to address disputes among members.

KIPLIMO: On a scale of zero to ten (0 being very poor and 10 being excellent), rate the seriousness of African countries towards regional integration.

RONOH: I would say five, but I must state that this is an intelligent guess. Some countries are committed to regional integration while others are quite the opposite.             

Kigen Kiplimo is a Communication, Campaigns and Outreach intern at the East African Tax and Governance Network (EATGN) and can be reached on Email at: kkiplimo@taxjusticeafrica.net                               

PHOTO CREDITS: Tax Justice Network

By

Andres Knobel

While many aspects of our lives and economies have faced uncertainty and instability during the Covid-19 pandemic, some areas seem to have resisted turmoil or even thrived from it. Unfortunately, Swiss banking secrecy and its abuse by corrupt officials and dictators is one of those areas, and it appears to be alive and kicking harder than ever.

As reported by Swissinfo:

Swiss officials have discovered CHF9 billion ($10billion) in embezzled Venezuelan public funds spread across hundreds of bank accounts. One in eight Swiss banks is caught up in this latest scandal, which some experts say shows up the failure of the anti-money-laundering mechanism put in place by Switzerland.

PHOTO CREDITS: Invest in Minnesota/Minnesota Budget Project

By

Paolo de Renzio, Jason Lakin and Fariya Mohiuddin

Domestic revenue mobilization (DRM) is fundamental to governments’ strategies to finance essential development goals. Yet, if taxation is not equitable, intensifying domestic revenue collection can undermine efforts to tackle poverty and inequality. Without a strong grass-roots voice in tax, progressive tax reform may falter.  Civic actors are critical stakeholders in building broad support for social bargains in which governments supply citizens with quality services in exchange for tax compliance.  The same actors can also provide muscle to help take on powerful interests that oppose redistributive tax policy.

As part of a new Tax Equity Initiative, the International Budget Partnership recently developed several resources to help civic actors get involved with tax reform and learn from each other:

Every five years, Uganda holds general elections to give citizens a chance to nominate their representatives for different political positions. Each political party or individual aspirant is expected to develop and share their manifestos with their electorates showing their motives/intentions if entrusted with power.

Majority of the key intentions highlighted by political parties in their manifestos are centered on a number of issues some of which include: economic growth, macro-economic stability, security, good governance and democracy, Public and Private sector institutional development, employment and, agriculture.

Conventionally Governments finance their expenditure through three major sources, these are, taxation, borrowing (foreign and domestic), and printing money. Globally, tax revenue is known as the most reliable source of revenue. However, in Uganda a few if not all political parties in their manifestos pay less attention to how the challenges they wish to address will be financed. To this regard, less attention is paid towards the recognition of as a tool for development and source sovereignty.