Magazine article Global Finance

Uncertain Taxes Hobble African Growth

Magazine article Global Finance

Uncertain Taxes Hobble African Growth

Article excerpt

Taxes often are considered a drag on economic activity, but most African countries lack so many public resources that a hike in tax revenues would largely benefit their economies.

Unfortunately, despite countries' efforts and international appeals, the ability of the continent to collect taxes remains limited. According to the latest report from the African Capacity Building Foundation (ACR), tax revenues have surged in recent years, more than doubling to $508.3 billion in 2013 from $213.1 billion in 2002. But this increase remains dependent on volatile markets such as commodities.

"These numbers may not reflect the situation across the continent, since the resource-rich countries skew the regional average and most African countries have tax-to-GDP ratios below the regional average," says the report, which is produced annually by the ACR, a cooperative venture backed by many African governments as well as global agencies such as the IMF.

African countries are setting relatively low corporate income tax rates and offering a variety of incentives to business in an effort to boost the tax base and eventually increase revenue. A 2016 survey by auditor KPMG showed that the average corporate income tax rate of 28 African countries is 23% or lower, with Mauritius being the lowest at 15%. Most of the countries considered in the report-called The Africa Incentive Survey 2016-are offering some sort of incentives.

"We have noticed a trend in more African countries' attempting to diversify their economies from an over-reliance on extractive industries and to branch into mainstream industries," the report says. "African countries appear to be introducing new or revised incentives, seemingly to compete more favorably for both local and foreign direct investments."

Many African countries, including Kenya, Rwanda and Ghana, are offering tax incentives to attract investment. …

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