Mitigating Covid-19 impact and the delicate tax policy balancing

30 Jun, 2020 - 00:06 0 Views
Mitigating Covid-19 impact and the delicate tax policy balancing Mr Logan Wort

The Chronicle

Prosper Ndlovu
AT a time when global economies including Africa are grappling with the adverse impact of the Covid-19 pandemic, the need to strengthen taxation capacity of developing countries has come to the fore, as states seek to balance cushioning measures and fostering sustainable development.

More than before, African tax policy makers will need to consider how to assess and achieve the right balance between tax policy measures to attract investment and help rebuild existing businesses with the need to raise revenue to fund the economic stimulus packages implemented to respond to the immediate impact of the pandemic and its aftermath, experts have said.

To rescue the economy and cushion vulnerable groups in Zimbabwe, Treasury has recently announced an $18 billion stimulus package within the context of expenditure reprioritisation and redirecting capital spending. While the disbursement modalities are still being fine-tuned, Government has also suspended duty on Covid-19 related imports and waived corporate tax interest in addition to expeditious processing of VAT refunds.

Indeed the on-going lockdown measures have induced a strain on business activity and cross border trading, with the productive sector finding it hard to secure raw materials, especially those with import component. The loss of production has heavily compromised job security and aggregate demand for goods and services as incomes wither.

Despite being a formidable economic pillar in Africa, small to medium enterprises have also been hardest hit. Unregistered informal sector players have actually been frozen by lockdown measures and some remain defunct under relaxed terms after failing to comply with set re-opening terms. In Zimbabwe the informal sector accounts for a majority of jobs and yet many of those who are unregistered have been closed out of the stimulus support funding and many are still not operational since March 30 when the first lckdown phase started.

The already suppressed economic environment amid the ongoing Covid-19 mitigation measures have a double impact on revenue collection and ultimately on budgeted national development projects. As a result, most African economies are in a dilemma and have filed for distress loan funding from international finance bodies like the International Monetary Fund, the World Bank and African Development Bank. Outside effective domestic resource mobilisation, many countries are likely to fall deeper into the debt trap.

The African Tax Administrators Forum (ATAF), the sole regional tax lobby body, has been very active in engaging and assisting countries to explore diverse approaches towards improving revenue performance and ensuring Africa gets a fair share of tax income from the global economy. This is being done within the context of three pillars; strengthening the taxation capacity of developing countries, ensuring the tax responsibility and transparency of companies that receive development cooperation funds, as well as improving the position of developing countries in global tax policy.

While noting that Africa desperately needs external investments, ATAF executive secretary, Mr Logan Wort, says foreign investors must be actively encouraged not to seek incentives such as tax holidays when investing in the continent, “as these erode the tax base”.

He also called for African voices to be listened to and given support in the standard-setting processes on global tax rules.

“The inclusive framework should listen to the African voice and allow for information to be available that would help tax (multi-national enterprises) MNEs in Africa,” he said.

Mr Wort’s remarks come on the background of a new three-year 2.1 million Euro agreement that has been signed by ATAF with Finland, leading to the launch of the Taxation for Development Action Programme early this month. The intervention is aligned to ATAF’s objectives of mobilising domestic resources for development, fair taxation and championing Africa’s interests in international negotiations on tax matters.

Despite the constraints induced by the Covid-19 pandemic, Mr Wort said Finland has doubled its funding to capacitating the tax systems of developing countries.

Launching the programme, Finland’s Minister for Development Cooperation and Foreign Trade, Mr Ville Skinnari, said it was more important than ever to promote sustainable development in all countries and to promote social and economic justice. Indeed the best way of doing this is to promote the use of domestic resources for development through taxation and fiscal policy, and by working to stop aggressive tax and illicit financial flows.

“Because of illicit financial flows and aggressive tax planning, developing countries lose more in tax revenue than they receive in development aid each year. African countries are now taking action to stop these flows and Finland wants to support them in the effort,” said Mr Skinnari.

The European Union Commissioner for Development and Global Partnerships, Ms Jutta Urpilainen, has endorsed the above interventio, adding that in the wake of the Covid-19 pandemic, debt relief was another important measure in support of development in poorer countries that should be considered.

Mr Wort has said that ATAF has made strides in building capacity and technical knowledge amongst its members in the past 11 years. He said technical assistance provided by the regional tax body has helped to build effective transfer pricing regimes in member countries and work to improve the exchange of information networks in Africa and to improve the fiscal regimes for the African extractives and commodities sector.

“We have been very successful in putting in place the building blocks for more effective tax regimes in African countries,” he added.

The document released by the Finnish Department of Foreign Affairs on the Tax and Development Programme states that by working with long-term partners such as ATAF, the experts of the Finnish Tax

Administration can contribute to the improvement of taxation capacity in several African countries in a manner that is administratively easy and credible.

“One of the activities that can be supported through ATAF is the African Tax Research Network (ATRN), in which some Finnish tax researchers have also participated. It strengthens Africa’s own capacity in this area.

“Further, efforts will be made to encourage Finnish-African cooperation in this taxation research with such partners as the Finnish government’s Economic Research Institute, the Finnish Tax Administration, the Helsinki-based United Nations University World Institute for Development Economics Research (UNU-Wider), and Finnish universities,” it said.

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