Government loses USD $2.27 billion as tax incentive

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Ghana loses a whopping $2.27 billion annually through corporate tax incentives, an amount which is three times the country’s budget allocation to the Ministry of Health, a new report published on last week by ActionAid and Tax Justice Network-Africa(TJN-A), has revealed.

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According to the report, entitled West African Giveaway, West African governments provide corporate tax incentives, including tax breaks and holidays, in the belief that they attract foreign investment which will in turn create jobs. But the report states that this “belief is both unfounded and harmful.”

The report further discloses that Ghana, Nigeria and Senegal are losing an estimated total of $5.8 billion a year through the granting of these corporate tax incentives.

Nigeria loses around $2.9 billion, and Senegal up to $638.7 million. “If the rest of ECOWAS lost revenues at similar percentages of their GDP, total revenue losses among the 15 ECOWAS states would amount to $9.6 billion a year,” notes the report.

Cote d’Ivoire is also not sparred the haemorrhage. The Report uneveils the fact that the country offers 50% tax exemptions to any firm willing to invest in regions outside of Abidjan, yet unemployment rates remain very high throughout the country and youth unemployment continues to threaten social cohesion.

The negative impacts of corporate tax incentives, says the Report, also include giving undue advantages to big firms and multinationals at the expense of smaller and domestic industries, and promoting corruption (notably by enabling special treatment to be given to specific companies).

ActionAid Nigeria’s country director, Ojobo Atuluku observes, “Each year, governments of West Africa are forfeiting billions of dollars in revenue that is needed to improve education, healthcare and infrastructure, and they are doing so without any evidence that tax incentives actually work.

In fact, as our report shows, there is a considerable body of information showing that tax incentives do not result in foreign investment and the subsequent creation of jobs.”
Unlike manufacturing, the extractives sector does not employ a large local workforce.

Atuluku again cites Nigeria to illustrate his point. “The government of Nigeria grants $2.9 billion a year in tax incentives to foreign companies. This is more than the federal education budget and twice the budget allocated for health. And yet the companies that receive these incentives employ only about 7,000 people. There are 30 million young people alone looking for work in Nigeria. Seven thousand is a mere drop in the bucket.”

“The situation we have right now is one in which everyone in West Africa is losing,” said Atuluku. “But it is the people living in poverty, in particular the women and children, who are the most affected. These people desperately need healthcare, education, clean water, agricultural inputs and the support of security services to climb their way out of poverty.”

The Report notes that the increased foreign investment in the region is largely due to the presence of natural resources like oil and diamonds. “The natural resources that West Africa has are rare and valuable. Extractive companies would invest with or without tax incentives,” said Tax Justice Network – Africa’s executive director, Alvin Mosioma.

Mosioma adds that the tragic irony is that “foreign companies do not consider tax incentives to be an important factor for investment; they would prefer good infrastructure, such as reliable roads and electricity.” Tax pays for the provision and maintenance of roads and electricity, as well as healthcare and education.

The report calls for West African governments to review the tax incentives they are granting with a view to abolishing all unproductive incentives. Any incentives that are determined to be effective should be targeted at achieving specific social and economic objectives that benefit West African citizens.

In addition, it urges ECOWAS to establish a regional framework for corporate tax incentives. Currently, the countries of the region are competing for foreign investment by offering increasingly bigger tax incentives, resulting in a ‘race to the bottom’.

ActionAid is a global movement of people working together to achieve greater human rights for all and defeat poverty. It believes people in poverty have the power within them to create change for themselves, their families and communities. ActionAid says it is the catalyst for that change.
Tax Justice Network-Africa (TJN-A) is a Pan-African initiative established in 2007 and a member of the Global Alliance for Tax Justice. It is a network of 29 members in 16 African countries.

Through its Nairobi Secretariat, TJN-A collaborates closely with these member organisations in tax justice activities at the national and regional level. TJN-A seeks to promote socially just and progressive taxation systems in Africa, advocating for pro-poor tax policies and the strengthening of tax systems to promote domestic resource mobilisation. TJN-A aims to challenge harmful tax policies and practices that favour the wealthy and aggravate and perpetuate inequality.

Source : Public Agenda

Government loses USD $2.27 billion as tax incentive

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