Pretoria - The tax system on the continent plays a substantive role as it is a tool for good governance and democracy, Finance Minister Nhlanhla Nene said on Tuesday.
“Beyond its fiscal role, the tax system has a more substantive role in Africa: it is an important tool for good governance, democracy and the basis for the social fiscal contract between governments and its citizens and corporations,” said the Minister.
Minister Nene was addressing the African Tax Administration Forum (ATAF) conference on cross-border taxation in Africa.
The Minister said that for the African continent as a whole, the tax burden stood at 26% of Gross Domestic Product (GDP) in 2012 compared to 24.4% in 2011.
The Minister said that resource-related tax revenues typically distract governments from generating revenue from more politically demanding forms of taxation such as corporate income tax (CIT) on other industries, the personal income tax (PIT), value added tax (VAT) and excise taxes.
In addition, he said, this makes the continent’s resource revenue vulnerable to highly volatile international commodity prices and external shocks.
The Minister said there is no doubt that current tax regimes have failed to keep pace with an increasingly globalised economy. The result was that multinationals are now able to take advantage of the outdated international tax laws to minimise their tax liability.
On the continent, multinational enterprises activities constitute large and significant proportions of national income. In some African countries, tax revenue from these enterprises often represents a significantly greater share of the tax base than in more developed countries and such countries rely very heavily on multinational enterprise taxation.
While base erosion and profit shifting is a problem affecting almost all developed and developing countries alike, profit shifting is not the only driver of the erosion of the African tax base.
Minister Nene said that factors contributing to the erosion of the continent’s tax-bases are exacerbated when, for instance, governments sign away their own tax revenues through ill-conceived tax incentives, insufficient tax mix and overreliance on single source taxation and inadequate taxation of high net worth individuals among others.
“It has been suggested that weaknesses in Africa’s tax regimes give away so much of the tax base that some of these new international tax rules may not even matter,” he said.
The Minister said having identified contributors to the erosion of the African tax base, it is imperative that “in our collective efforts we work to make an impact at the international level as well as continue to develop our own capacities to deal with the challenges”.
“It is imperative that all African and other developing countries be involved in the base erosion and profit shifting (BEPS) process to ensure that sufficient attention is given to the different levels of readiness of developing country tax administrations and the resource and capacity limitations they face,” said the Minister. - SAnews.gov.za
