International Tax Justice

Academy (ITJA) 2014

Facilitator

Cephas Makunike
cmakunike@taxjusticeafrica.net

TJN-A

Presentation Overview
SUB TOPICS
Introduction
What is tax coordination
Harnessing Regional
Cooperation
Tackling harmful tax
competition: Continental
and sub-regional Efforts
Areas of convergence
Areas of divergence and
threats
Conclusion

TAX COORDINATION IN
AFRICA

Introduction
The EU is seen in many parts of the world as
the benchmark for economic integration, and
consequently as an example of tax
coordination among sovereign states
Tax coordination is increasingly being seen as
an enabler for national governments to
collect and redistribute funds into projects
and programmes that benefit a country,
region and the continent as a whole

Introduction contd (1)

Involves cooperation in taxation and related
matters with e.g. the creation of a tax
database containing detailed information on
the tax policies of each country.
The WAEMU Treaty goes further than the EU;
in addition to coordinating the setting of tax
rates and bases for the major taxes through
regional directives, it mandates the
convergence of the tax revenue-to-GDP ratio
to at least 17 percent, and the convergence of
tax revenue structure

Introduction contd (2)

Each country shows to which bilateral tax
agreements they belong and include statistical
breakdowns of that countrys revenues from
taxation, specified as direct and indirect levies.
Creation of tax database intended to provide
visitors with extensive tax information about
each country in order to guide investment in
the region among other things
It also provides a starting point for further
research into regional/ African tax data.

Definition of Tax Coordination

Tax harmonisation, synchronisation,
integration, convergence, standardisation,
compatibility
Common policies on taxation
Cooperation in taxation and related matters
co-ordination of policy formulation and
administration

Definition Contd (1)

The IBFD International Tax Glossary (Larking,
2005) defines tax harmonization as the
elimination of differences or inconsistencies
between the tax systems of different
jurisdictions, or making such differences or
inconsistencies compatible with each other.
Peggy Musgrave (1989: 14) defines tax
harmonization as the process of adjusting
national fiscal systems to conform with a set
of common economic aims.

Examples of Tax Coordination

Examples are based on EAC, SADC & WAEMU
Promotion of the use of excise duty on an ad
valorem basis on luxury goods and services as
an alternative to the application of multiple
VAT rates or sales tax rates (SADC FIP Annex 3,
Article 6, Paragraph 4, );
Harmonisation of the application of excise duty
rates, with particular regard to tobacco
products, alcoholic beverages and fuel
products (SADC FIP Annex 3, Article 6,
Paragraph 5);

Examples contd
WAEMU Directives on value-added tax (VAT)
and excises introduced in 1998; and, by 2009,
the region completed a set of directives in
relation to capital income taxation

Harnessing Regional Cooperation

As a step towards common policies on
taxation, SADC released its Memorandum of
Understanding (MOU) on Cooperation in
Taxation and Related Matters in 2002
This document sets out SADC policy on
taxation as it relates to the ultimate goals of
economic development and regional
integration - also appears in Annex 3 of the
Protocol on Finance and Investment

Tackling harmful tax competition:

Continental and Sub-regional Efforts
Tax schemes aimed at attracting investment
can create harmful tax competition between
States, carrying risks of distorting trade and
investment and could lead to the erosion of
national tax bases
Tax coordination tackles this by:
establishing and regularly maintaining an online
tax database that provides comprehensive
information about countries national tax
structures.

Tackling Harmful Tax Competition

contd (1)
collaborating on tax incentives that encourage
investment, rather than those that reduce
transparency or purely act as a vehicle for tax
minimisation
these measures aim to create a clear and
transparent system of taxation that harmonises
policies to prevent investment barriers and to
avoid double taxation
Development of the expertise of tax officials with
support for training programmes and seminars on
tax design, policy, and best practices

Tackling Harmful Tax Competition

contd (2)

discouraging the spread of tax havens and harmful

preferential tax regimes and encouraging those
countries which presently engage in harmful tax
practices to review their existing measures
Helping countries move towards the level playing
field which is so essential to the continued
expansion of regional and continental economic
growth.
Development of regional tax guidelines/directives
and commentaries which shape good and
common tax designs and systems

Areas of Convergence
There is a general acknowledgement of the
benefit of common approaches to taxation
with an eye toward dissemination of tax
information, capacity building, and agreements
on tax incentives that foster investment
Establishment of a Model Tax Agreement that
acts as a common policy for dealing with
international partners
Setting of minimum standards on tax structure
and design

Areas of Divergence and Threats

Different tax systems/designs across countries
e.g. some countries have VATs whilst others
have sales taxes; for excise duties-different
products are excisable across countries
Different fiscal policies e.g. in extractives, use
of specific/ ad-valorem tariff rates for excise
duty
Different economic sizes and priorities

Areas of Divergence and Threats

(1)
Different tax rates e.g. In SADC, at March 2014
the VAT standard rates of Member States
ranged between 12% and 20% with eight
Member States with rates between 14% and
16%.
Special Tax Regimes: The Achilles Heel of Tax
Coordination investment codes

Divergence contd
coordination framework approach broadly
based on the European Union (EU) model of
coordination, but differs from it in many
regards, including the limited powers and
resources of regional institutions
Different GDPs, inflation rates, tax capacity,
tax bases

Conclusion
Tax coordination is envisaged to:
create necessary conditions for long term
establishment of regional/ continental common
markets
facilitate legitimate business and
regional/continental trade through fair and
efficient tax regimes
to sustain and enhance African countries
domestic tax revenues on an equitable,
economically efficient basis, economically and
neutral way

Conclusion Contd
terming tax competition hence fighting the race to
the bottom and tax incentives which result in
revenue losses
succeed in converging tax systems, particularly
statutory tax rates,
contributing to improving revenue mobilisation

The credibility of the coordination framework

depends in large part on the credibility of its
regional institutions

THE END

THANK YOU!!