Four members of the East African Community (EAC) are losing $2.8 billion each year for providing corporations with tax incentives that are anyway useless to attract foreign investments, according to a report issued by the Tax Justice Network-Africa and ActionAid. This trend is “depriving countries of critical resources needed for reducing poverty” and “dependence on foreign aid,” reads the study, focused on Kenya, Uganda, Tanzania and Rwanda and titled “Tax competition in East Africa: A race to the bottom?”
In Uganda, by example, “the revenue losses amount to nearly twice” the national “entire health budget in 2008/09 – a serious situation when […] a quarter of the country’s 34 million population lives in poverty (less than US$1.25 a day),” warns another report produced by the same organizations but centered on that country.
The East African study was known while the European Parliament stated on April 19 that “clear EU [European Union] rules are needed to prevent such forms of tax competition which undermine the recovery strategies of the countries concerned.” In another resolution that amends the European Commission proposal on a Common Consolidated Corporate Tax Base, the legislative body warned the same day that “certain […] forms of tax competition, tax optimization and tax arbitrage could erode some Member States’ revenues and create distortions.”
“The tax policy of Europe is now that of the Tax Justice Network [TJN]. It’s an extraordinary achievement,” wrote on his blog Richard Murphy, senior adviser of TJN and one of the founders of this international coalition of civil society organizations.
TJN defines tax competition as “the process by which jurisdictions use fiscal incentives (such as tax breaks and subsidies) to attract investment. It can involve whole countries ‘competing’ against each other, but it can also happen between states in a federation, such as inside the United States or Switzerland, or even between cities.”