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PRETORIA – The African Tax Administration Forum (ATAF)’s 6TH High-Level Tax Policy Dialogue noted that as AfCFTA will be the largest free trade area in the world, to sustain the financing of our development, African countries need to implement Domestic Resource Mobilisation reforms to leverage the benefits of AfCFTA and cover any potential revenue loss from non-collection of import taxes from intra-Africa trade; as well as to intentionally eliminate Non-Tariff Barriers to optimise the gains of the ACFTA.
The meeting took place from 3-4 August 2022 virtually through Zoom Conferencing under the theme
Boosting Trade and Tax Revenues: The Impact of The AfCFTA on Domestic Resource Mobilisation in the next five years.
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1. The 6th ATAF High-Level Tax Policy Dialogue attracted over 479 officials from African Ministries of Finance, African Tax Administrations, the African Union (AU), the African Continental Free Trade Area (AfCFTA) Secretariat, Regional Economic Communities (RECs), Civil Society, African Development Bank (AfDB), World Customs Organisation (WCO), Organization for Economic Cooperation and Development (OECD), United Nations Economic Commission for Africa (UNECA), International Monetary Fund (IMF), Development Partners, other key partners, members of academia, individual tax policy experts and private sector players. The High-Level Tax Policy Dialogue took place virtually through Zoom Conferencing on the 3rd and 4th of August 2022 under the theme “Boosting Trade and Tax Revenues: The Impact of The AfCFTA on Domestic Resource Mobilisation in the next five years”.
2. In the Opening Session, the three speakers – Mr Logan Wort (Executive Secretary, ATAF), Mr Philippe Tchodie (Chairman, ATAF Executive Council) and Mr Emmanuel Billy Konjoh (Chief Director and Professional Head, Ministry of Trade and Industry of the Republic of Sierra Leone) highlighted the need for the continent to embrace intra-continental trade, that will boost economic development in member states.
3. The meeting noted that as AfCFTA will be the largest free trade area in the world, to sustain the financing of our development, African countries need to implement Domestic Resource Mobilisation reforms to leverage the benefits of AfCFTA and cover any potential revenue loss from non-collection of import taxes from intra-Africa trade; as well as to intentionally eliminate Non-Tariff Barriers to optimise the gains of the ACFTA.
4. The meeting agreed that to support Domestic Resource Mobilisation efforts on the continent, especially with the potential reduction of customs revenue, ATAF should continue its work on providing technical support to the African Union Commission on policy reforms and, in particular, the implementation of the continent’s Tax and Illicit Financial Flow strategies. It was also agreed that ATAF’s work should not only concentrate on tax but also on Customs and Trade, as the synergies will positively impact financing for development in Africa.
5. Participants noted that there are fragmented tax policies across the continent, and for AfCFTA to succeed and contribute to Domestic Resource Mobilisation, delegates urged the African Union to work closely with RECs and member states to lead tax policy initiatives on the continent through the development and implementation of common positions. Regarding this, ATAF was requested to continue its collaborative work with the African Union on developing and implementing the African Union’s Tax Strategy for Africa – “A Future of Financial Independence”. Tax policies should support sectors such as manufacturing, agriculture, services, pharmaceuticals, renewable energy and research and development, which are key to international trade.
6. As the eight (8) Regional Economic Communities (RECs) in Africa are the building blocks for AfCFTA, participants urged the African Union Commission to work closely with RECs to develop and implement common tax policy positions for African countries.
7. With only about 15% intra-African trade, compared to over 60% in other continents, the meeting recognised that African countries need to improve trade facilitation to significantly reduce the bureaucratic delays and “red tape” in moving goods across borders under AfCFTA. Therefore, to leverage the benefits of AfCFTA to contribute to Domestic Resource Mobilisation, African countries should implement key provisions of the World Customs Organisation’s (WCO) Trade Facilitation Agreement and implement reforms that will modernise, simplify and harmonise import and export processes.
8. Participants noted that the minimum corporate income tax rate of 15% recommended through the OECD-led global tax debate on enhancing tax collections is too low to deter multinationals from deploying aggressive tax evasion and avoidance practices. Therefore, African countries should seek a higher minimum tax rate of at least 25%. Focusing on deepening the tax base and improving compliance for VAT will contribute to hedging revenue loss from AfCFTA. VAT revenue can be improved by implementing a compliance regime to capture the cross-border supply of digital services, especially Business to Customer (B2C) transactions. Also, an enhanced compliance risk management framework and robust compliance improvement plans will deepen tax compliance when effectively implemented.
9. On critical reforms required in Customs administration, the meeting agreed that countries should concentrate on improving Valuation – which is central to the administration of other taxes, even if import duty is not paid; the Harmonised System – that ensures proper classification of goods; Rules of Origin – a key element of free trade between African countries; Automation – to facilitate, simplify and fast track the movement of goods; and Risk Management – to identify and mitigate the risks to revenue.
10. In solving the problem of trade mis-invoicing, participants urged African governments to improve legislation that will strengthen regulations on collecting information on beneficial ownership, politically exposed persons, and any sectors deemed “high-risk”. Also, countries should make trade mis-invoicing illegal, strengthen law enforcement capacities of customs authorities, strengthen operational and tactical plans, establish multi-agency teams to address customs fraud, tax evasion and other financial crimes, implement readily available trade mis-invoicing risk assessment tools, strengthen customs oversight of Free Trade Zones (FTZs), and establish National Trade Facilitation Committees.
11. The meeting recognised that a major impediment in solving trade mis-invoicing is the lack of trade data and statistics. Therefore, countries were urged to work with international partners to expand information-sharing between importing and exporting countries, explore the use of distributed ledger technology to identify trade mis-invoicing and strengthen coordination between national statistics and international statistical databases such as UNCTAD and the IMF’s Direction of Trade Statistics.
12. It was noted that the Rules of Origin, Classification of Goods and Valuation under AfCFTA were key to ensuring the free movement of goods across the continent. To protect revenues and mitigate fraud, countries were urged to implement strategies to reduce false declarations of the origin of the goods and curtail undervaluation and misclassification. Considering this, governments were urged to increase cooperation through Regional Economic Communities (RECs), customs authorities and use existing Exchange of Information (EOI) platforms and structures.
