African countries tax losses triple annual foreign aid – VP Osinbajo *How some multinationals dodge taxes in Africa
“Enforcement is, of course, another major issue that practically all tax authorities, especially in sub-Saharan Africa, have to deal with. Again surveys show increasing innovation and creativity by administrators in this regard.
“The elephant in the room in most discussions on tax in developing countries remains the problems of domestic resource mobilization. Addressing the tax gap, or the difference between what we collect and what we could collect.
KEYNOTE ADDRESS BY HIS EXCELLENCY, PROF. YEMI OSINBAJO, SAN, GCON, VICE PRESIDENT,FEDERAL REPUBLIC OF NIGERIA, AT THE AFRICAN TAX ADMINISTRATORS FORUM (ATAF) 3RD INTERNATIONAL CONFERENCE ON TAX IN AFRICA, HELD AT TRANSCORP HILTON HOTEL, ABUJA, ON TUESDAY, 26TH SEPTEMBER, 2017
The African Tax administrators Forum deserves our commendation for this timely conference and its important theme, Building Strong Domestic Tax Regimes in Africa: Strengthening VAT, Personal Income Tax and Companies Income Tax’’.
The forum had committed to this cause since August 2008. After the international conference in 2008 on a somewhat similar theme: Taxation, State building and Capacity development in Africa, senior tax administrators and policy makers from 39 African countries agreed to work towards the “establishment of the forum as a platform for sharing best practices in taxation matters in the region”.
It is remarkable indeed that the forum has through the years been unwavering on its founding mission and ideals. But it is worth noting also that the tax problems of African states have remained much the same in complexity and character since.
The elephant in the room in most discussions on tax in developing countries remains the problems of domestic resource mobilization, addressing the tax gap, or the difference between what we collect and what we could collect.
The constraints are similar though in varying degrees across the continent. They include, a large informal sector, including large subsistence agricultural sectors, tax evasion and avoidance, tax exemptions, and inequitable and opaque rent-sharing arrangements in the extractive sector.
Significantly also, by the use of aggressive and often suspicious tax planning and transfer mis-pricing multinationals minimize their tax payments or, to put more graphically, dodge taxes.
The Thabo Mbeki report on illicit financial flows discloses shocking details of tax losses to African economies by these practices of multinationals and their local collaborators. Paradoxically the report shows that these practices lead to an estimated revenue loss for developing countries that is three times greater than the amount they receive in foreign aid each year.
However, the trend of the international debate on global tax issues is favourable to African economies and most African tax administrators must be following them closely.
There are two main items; the first is increasing transparency and information exchange, while the second is Base Erosion and Profit-Shifting (BEPS).
The former involves establishing automatic information exchange as the new global standard for cooperation in tax matters and ending legal secrecy of ownership of companies and trusts, especially those based in tax havens.
On Base Erosion and Profit Shifting, which has also done significant damage to domestic resource mobilization in Africa, a range of potential actions are planned by OECD countries. These include checking transfer mis-pricing, country-by-country reporting by transnational companies, international tax law, standards for international tax treaties, limits on tax planning activities and the tax treatment of the digital economy. These agendas have been endorsed by the G8 and the G20, thus giving them high- level support and momentum.
Although the immediate outcomes will benefit the OECD, EU and BRICs countries more African tax administrators must see the great opportunities in these initiatives and take advantage in developing domestic tax policies and regulations.
As an example of taking advantage of these initiatives we recently in Nigeria launched a Voluntary Assets & Income Declaration Scheme, backed by an executive order to provide an opportunity for taxpayers who are in default under all relevant statutes, to within 90 days, voluntarily declare their assets and income, and pay taxes on them while being forgiven payments of interests and penalties.
Although the scheme targets local tax evasion, we are also interested in the large number of Nigerians who own property abroad and have not been paying taxes on incomes from these assets. The British government’s initiative on transparency in beneficial ownership of properties will greatly assist this drive.
I think it is important to emphasize that almost across Africa, tax administrators are actively engaged in extensive reforms and battling the resource difficulties that hamper those reforms. The issues of cost of collection and the appropriate technologies that could bring down these costs, developing relevant skills and management needed to effectively create and run efficient and transparent tax administrations, issues around institutional structure, the wisdom of ensuring autonomy of institutions of tax administration have stretched the creativity and resourcefulness of tax administrators across the continent.
Enforcement is, of course, another major issue that practically all tax authorities, especially in sub-Saharan Africa, have to deal with. Again, surveys show increasing innovation and creativity by administrators in this regard.
Permit me to say though that perhaps the equivalent of the invention of electricity for tax administration in Africa is inventing the solution to effectively collect taxes from our huge informal economies.
The easy argument is to suggest that we should wait until economic growth and development brings them into the formal systems. This is unhelpful. It has kept us on the same spot for decades. It seems to me that we must find a way of fixing this car while the engine is running.
I would urge that this conference consider some solutions to this problem along with the so many huge issues that will occupy your attention in the next few days.
Let me again commend ATAF for this most relevant knowledge exchange opportunity and our local host, the FIRS, who have proved to be one of the most innovative and forward-looking tax administrators in Africa.
On behalf of President Muhammadu Buhari and the government and people of Nigeria, I welcome you all most heartily and wish you exciting and useful deliberations.
It is on this note that I declare this 3rd African Tax administrators Forum conference open.