The Policy and Advocacy Manager of Tax Justice Network – Africa (TJN-A) has urged African governments to review tax incentives for free zone companies.
“Tax incentives must apply to companies that have something to show. These companies must be able to create massive employment and other services to benefit the citizenry,” Mr Savior Mwambwa said. He urged African governments to be cautious of signing tax treaties, he further advised them not to fall into the “trap of tax competition and tax incentives”.
“Impose withholding tax on payments to related parties or disallow deductions for payments to subsidiaries in tax havens. Put caps on deductions for services, fees, interest expenses, management fees and other inter-company charges,” Mr Mwambwa suggested and added, “Use profit split method to determine source country taxability (China, India, Indonesia etc. use it).
Review and renegotiate
Mr Mwambwa said this when he addressed selected African journalists in Nairobi, Kenya today. Tax Justice Network-Africa and University of Cape Town are organising a two-day training programme for 25 journalists from Africa on tax, illicit financial flows (IFFs) and domestic resource mobilisation to finance Africa’s development.
According to Mr Mwambwa, the status quo where companies enjoyed automatic tax reliefs irrespective of whether or not they were performing should either be abolished or reviewed for the interest of African citizens. Touching on another form of tax evasion, Mr Mwambwa noted that one area companies took advantage of, was the five-year tax reprieve given to them as a form of incentive to shore up investments.
He said most of these companies set up new companies every five years for tax rebate and in other cases they resorted to rebranding and changing of names, board of directors and directors to create the impression they were coming up with new companies. According to Mr Mwambwa, Kenya was taking steps to curtail this trend.
For instance, he noted that the Kenyan Revenue Authority was on the heels of tax evading companies. Mr Mwambwa advised governments to train tax administrators and share best practices with fellow African countries. He also called for the formation of regional alliances to enforce the rules that would propel Africa’s economic development.
Topics such as trade mis-invoicing, the connection between taxation and national development, foreign direct investment and Africa’s development in the 21st century, tax avoidance and investigating tax abuse by multinational companies are being discussed. The training has been designed to improve the understanding of African media practitioners to enable them to accurately and adequately report on tax, IFFs, the general tax justice agenda and their linkages to the broader structural transformation of African economies. A Pan-African media award scheme for the best report on taxation in Africa will be launched after the training.