Business News of Tue, 25 Aug 201513
Ghana loses $2.27b annually through tax incentives
It is estimated that Ghana loses around S2.27 billion every year in corporate tax incentives granted multinational businesses.
This amount is three times the country's budget allocation to the health sector.
According to a new report published yesterday by ActionAid and Tax Justice Network-Africa (TJN-A), the negative impacts of corporate tax incentives include giving undue advantages to big firms and multinationals at the expense of smaller and domestic industries.
It said the development also promotes corruption by enabling special treatment to be given to specific companies
The report said West African countries are losing an estimated US$9.6 billion of revenue each year by granting tax incentives to foreign companies.
The report noted that three countries - Ghana, Nigeria and Senegal - are losing an estimated $5.8 billion a year through the granting of corporate tax incentives.
It stated that Ghana loses around $2.27 billion, Nigeria around $2.9 billion, and Senegal up to $638.7 million.
If the rest of ECOWAS lost revenues at similar percentages of their GDP, total revenue losses among the 15 ECOWAS states would amount to $9.6 billion a year.
It stated that West African governments provide corporate tax incentives, including tax breaks and holidays, in the belief that they attract foreign investment, which will in turn create jobs, but the report states that this belief is both unfounded and harmful.
Tax Justice Network- Africa's Executive Director, Alvin Mosioma said extractive companies would invest with or without tax incentives.
Unlike manufacturing, the extractives sector does not employ a large local workforce.
The report, entitled West African Giveaway, states that while there has been increased foreign investment in the region, it is largely due to the presence of natural resources like oil and diamond, "the natural resources that West Africa has are rare and valuable."
The tragic irony, Mosioma said, is that "foreign companies do not consider tax incentives to be an important factor for investment; they would prefer good infrastructures, such as reliable roads and electricity." Tax pays for the provision and maintenance of roads and electricity, as well as healthcare and education.
The report calls for West African governments to review the tax incentives they are granting with a view to abolishing all unproductive incentives.
Any incentive that is determined to be effective should be targeted at achieving specific social and economic objectives that benefit West African citizens.
The report further states that the Economic Community of West African States (ECOWAS) must establish a regional framework for corporate tax incentives. Currently, the countries of the region are competing for foreign investment by offering increasingly bigger tax incentives, resulting in a 'race to the bottom'.
Senegal continues to increase corporate tax incentives for firms operating in the country's free trade zones, but employment has failed to increase in these areas.
Cote d'Ivoire offers 50% tax exemptions to any firm willing to invest in regions outside of Abidjan, yet unemployment rates remain very high throughout the country and youth unemployment continues to threaten social cohesion.
According to Ojobo Atuluku, ActionAid Nigeria's country director, "Each year, governments of West Africa arc forfeiting billions of dollars in revenue that is needed to improve education, healthcare and infrastructure, and they arc doing so without any evidence that tax incentives actually work.
"In fact, as our report shows, there is a considerable body of information showing that tax incentives do not result in foreign investment and the subsequent creation of jobs."
Atuluku sites Nigeria as an example, adding that, "the government of Nigeria grants $2.9 billion a year in tax incentives to foreign companies.
"This is more than the federal education budget and twice the budget allocated for health.
"And yet the companies that receive these incentives employ only about 7,000 people. There are 30 million young people alone looking for work in Nigeria. Seven thousand is a mere drop in the bucket.
"The situation we have right now is one in which everyone in West Africa is losing," said Atuluku. "But it is the people living in poverty, in particular, the women and children, who are the most affected. These people desperately need healthcare, education, clean water, agricultural inputs and the support of security services to climb their way out of.