Although Africa boasts immense natural wealth, tax systems undermined by corruption continue to drive inequality across the continent, says Mukasiri Sibanda, Zimbabwean fiscal justice advocate and ex-coordinator at Tax Justice Network Africa, at the Liberalist Centre’s webinar on July 30.
The event, “Tax Incentives or Tax Injustices: Hidden Drivers of Inequality in Africa,” is part of the Centre’s ongoing advocacy for economic freedom and fiscal literacy.
Sibanda explained that taxation comes with principles that citizens must understand. He noted that in terms of distribution, taxpayers are not always the first to benefit from public spending.
“When you raise revenue, the assumption there is you want to make sure that those who earn more contribute more in proportion to their income taxes and those who earn less are not targeted to pay the same disproportionate tax,” said Sibanda.
He continued that tax distribution comes in benefits, which may be in the form of public infrastructure, public services, health care, and education, and that tax incentives often accompany tax benefits that promote investment. However, its administration in some African countries has “linkages with corruption.”
When tax incentives are not strictly defined in legislation and enforced, Sibanda says investors and big companies exploit the system.
“It is only in Tunisia, as far as literature says, that you find all tax incentives as part of the legislation. For the majority or the rest of the African countries. It is either you find them in legislation, or you find them in negotiated contracts with investors, which are then secretive, and these have the capacity to ensure they benefit businesses that are politically connected,” stated Sibanda.
“Most African countries are natural resource dependents. They depend on mining, oil and gas, and these assets are geographically linked. What pulls capital to these assets is the quality and quantity of the deposit or reserve.
“For instance, the DRC are near monopoly when it comes to cobalt production, accounting for over 60 percent of the global needs of cobalt; Guinea has bauxite which is needed to produce aluminium and they remain a monopoly globally; South Africa is the largest producer of the platinum group of metal and are near monopoly in that sector too,” he explained.
According to Fraser Institute’s Investment Attractiveness Index for countries, Sibanda said what attracts investments is the quality of the geological potential, the availability of infrastructure, peace and stability, predictable policy, and legal and institutional frameworks.
“If a company negotiates a secretive agreement, then others will also be negotiating to say, ‘How do we lower our tax obligations?’ because they are not using what is prescribed at law, not corporate income tax: another source of inequality. This is why many African countries run a budget deficit. When the government has less revenue, it also must recoup that revenue.
“Most sectors designated for incentives are where the politically-exposed people are operating. So when there is corruption in the end, the intended beneficiaries miss out,” said Sibanda.
