Friday July 29 2011

Scrap tax incentives, civil society urges East African governments

By Emmanuel Mulondo

Civil society organisations want East African governments to scrap tax incentives as a stimulus for investment inflows and development accelerator. Speaking during a roundtable discussion in Nairobi, Kenya on Wednesday, activists said incentives hinder the entry of revenue and have no empirical results to prove their efficacy and impact to investment.

They argue that the incentive regimes in the EAC are also an obstacle to integration and could lead to a “race to the bottom” as member states compete to give incentives in the name of attracting foreign direct investment (FDI).

Discussing efficacy
The meeting organised by the Tax Justice Network - Africa and ActionAid International – Kenya, attracted policy makers, academics, tax administrators and business leaders in the EAC, to discuss the efficacy, and impact of tax incentives in directing investment inflows and development accelerators and the broader implication to regional development.

Dr Dereje Ademayehu, chairperson of Tax Justice Network –Africa, said: “Advocates of incentives argue that FDI is necessary for the transfer of technology but experience has shown that multinationals just extract wealth and go away with it without transferring technology and skills.”

Mr Ragnar Gundmundsson, the International Monetary Fund resident representative in Kenya, said: “Although incentives are popular in Africa as a stream for attracting investment, economists are increasingly becoming skeptical about their impact.”

“There is very little impact of tax incentives in the absence of other interventions,” he said.

According to Mr Gundmundsson, EAC member states have to address other concerns including infrastructure and strengthening the rule of law instead of solely relying in incentives.