AfCFTA deal unsettles revenue authorities
AS the drive towards operationalising the African Continental Free Trade Agreement (AfCFTA) gathers momentum, revenue authorities within the region are apprehensive of the potential compromise this would pose on domestic revenue collections mainly on the customs front.
Africa is in dire need of a strong domestic revenue base to meet its development needs as part of a wider long-term desire to wean itself off donors.
Speaking at the ongoing 4th International Conference on Tax in Africa here, revenue administrators and their stakeholders stressed the need to boost domestic revenue through expanding the tax base in a manner that will notably increase their tax-to-GDP ratios while ensuring stability in revenue.
However, they expressed fear that the AfCFTA deal, which has already been signed by many African governments and is due for implementation in July 2020, might offset customs revenue gains.
“The African Continental Free Trade Area brings exciting new prospects for the continent, but immediately, means a loss in customs revenue meaning, it is imperative to tap into efficiency in collecting revenue,” said Mr Logan Wort, executive secretary for ATAF, a 38-country member regional advocacy organisation on tax administration issues in Africa.
Moreover, given that the notion of digitalised economies is getting more prevalent in Africa, Mr Wort said policy and administrative action needs to be considered “to counter the decreasing contribution of corporate income taxes relative to total tax revenue”.
Head of the Federal Inland Revenue Service,
Nigeria, Mr Tunde Fowler, concurred but said the possible customs revenue loss from embracing the AfCFTA would be for a short while and that states need to put interim interventions to ease the impact.
“Indeed, many countries have signed and ratified the AfCFTA. While spelling exciting news for intra-Africa trade, it could lead to a reduction in the customs revenue in the short term, thus requiring stop-gap measures not to affect development plans,” he said.
Mr Fowler said in the long-run the AfCFTA would yield positive dividend that will cushion economies as members will realise benefits of trading in a wider market.
The African Tax Outlook calculates customs revenue as contributing about 14 percent to the total tax basket in the continent.
This requires Africa to develop more efficient and effective ways of collecting revenue, with technology as a prime instrument.
Africa’s Agenda 2063 views domestic resources as an important enabler of its aspirations.
In fact, the regional blueprint specifically stresses the need to “build effective, transparent, and harmonised tax, revenue collection, and public expenditure systems” as one of the key pillars.
President Mnangagwa was part of the African Heads of State and Government who signed the historic continental trade agreement establishing the AfCFTA on March 21, 2018 in Kigali, Rwanda at an African Union Extraordinary Assembly.
The country has since ratified the agreement with both the National Assembly and Senate duly endorsing the move in March this year.
Zimbabwe further deposited the instrument of ratification with the chair of the AU Commission in May this year, becoming the 23rd country to do so.