Explore Domestic Resource Mobilisation over external borrowing - Tax expert
SADC region spends US$ 21 billion annually on debt repayments
Africa is in the debt trap because the continent has been preconditioned to think that the only way to finance development is through borrowing, receiving aid or through the much- hyped public– private partnerships, an official from Tax Justice Network Africa has said.
Tax Justice Network Africa’s Francis Kairu, a Policy OfficerTax and the International Financial Architecture wondered why most African leaders are fixated with external borrowing which always comes with high interest rates and strict conditions rather than designing tools for Domestic Resource Mobilisation ( DRM).
Africa as a region is swimming in debt; with debt reservicing costs growing too high every year.
“The issue of debt re- servicing within the SADC region has actually grown so fast that currently within the region we are spending at least US$ 21 billion per year on debt repayments,” Kairu said.
He was speaking during a SADC Parliamentary Forum conference held in Zimbabwe. The meeting which was attended by Members of Parliament from Mozambique, eSwatini, Lesotho, Zambia, Malawi and Zimbabwe was organised by the Zimbabwe Network of Early Childhood Development Actors ( ZINECDA) in partnership with Network of Early Childhood Development of Lesotho ( NECDOL), and the ECD Coalition of Malawi ( ECDC Malawi).
The organisations are implementing a transnational advocacy capacity building project ( TRANAC) which seeks to develop stronger and vibrant Early Child Development and Education ( ECDE) in Southern Africa.
He argued that it is time for Africa to look from within to fund development, adding that taxation is one of the tools for Domestic Resource Mobilisation.
“If you think of financing development we have several options which may include; continuing with receiving aid; continue using debt to finance development; explore PPPs ( public– private partnerships) or look at Domestic Resource Mobilisation ( DRM) as an option,” he said.
“If you look at the issue of debt to GDP ratio within the SADC region as at the year 2021 it was standing at 67.1 percent. If you look at our options either receiving aid or using debt or PPPs then if debt is going to be our option then I don’t think it is sustainable,” Kairu added.
One major problem for Africa is fiscal deficits that are being presented to most parliaments every single year. Every budget circle is dealing with fiscal deficits. Currently the average fiscal deficit as at 2021 across the SADC region is 7.3 percent of GDP.
Botswana’s Finance Minister Peggy Serame revealed early this year that the 2021/ 22 budget deficit widened to 5.1 percent of GDP as the country used its funds to finance its recovery from the COVID- 19 pandemic.
The pertinent question is how can Africa finance all this gaps without borrowing from outside. “It is good to think about the financing gap, how much money do we need across Africa for us to be able to develop.
“Statistics show that if we want to grow our GDPs by only 2.6 percent per year from now heading towards meeting the SDGs ( Sustainable Development Goals) we need to raise at least 68- 108 billion dollars per year,” Kairu revealed.
For the continent to raise these astronomical amounts, it has to rethink about its taxation systems, which will include rethinking, “how we tax, who we tax, and when we tax.”
According to Kairu, when government needs money one of the best ways it can get money is by using taxation because it puts money directly into the pockets of government.
“Taxation will allow you to have money within a certain time frame and it is in your pocket, you don’t need to go to IMF, the World Bank, and the world of private debtors because you already have resources in your hands that you can be able to speak about and be able to plan for.”
Kairu punched holes in other models of financing development in Africa such as the public– private partnerships ( PPPs) which he sarcastically labelled Poison Poison, Poison, or Profit Profit, Profit. The PPPs model, he said, is not the best, because, “the problem is how we negotiate the terms, we negotiate from the point of being disempowered.”
Most companies, he says, will come with backing from their governments; they will come with certain incentives. “They leave us holding the short end of the stick,” he argues, because this companies’ main objective is to make profit.
DESIGNING A GOOD TAXATION SYSTEM
Kairu is of the view that taxing corporates is one of the key pitfalls for each of countries. “We are granting tax incentives to companies, we are giving them tax holidays, we are allowing them to get away with zero tax payments, and we are allowing them to move money out of our countries,” he said.
“Tax incentives is a major concern because we have been preconditioned to think that the only way to attract big companies to increase FDI ( Foreign Direct Investment) in most countries is by granting tax incentives. I’m calling for a rethink of how we design our taxation systems for corporates to avail more resources to finance education and to finance other social services for which MPs are responsible for.”
He explains that taxes are the most stable and reliable source of domestic revenue available to countries and without adequate domestic resources; African nations are dependent on external financing.
Africa, according to him, needs what he termed Progressive Taxation. He says African governments have been forced to adopt regressive taxation systems due to the ease in collecting them. Unfair tax burden is therefore largely borne by the poor.
“We have been preconditioned to only think about consumption taxes as the main way through which we raise revenue within our countries, and therefore our citizens the people who voted for us end up shouldering the burden as compared to those that are richer, big companies and owners of big companies.”
He cautioned against taxing which is easy to collect such as the VAT. Increasing VAT for example affects the ordinary
people more than it affects big companies.
“We should not rush for the low hanging fruits. In order to raise enough revenues we should not press the poor, we should rethink how we are taxing those who are earning more, those who come to our countries and make money, and those who are responsible for tax evasion and tax avoidance,” he noted.
Digital Tax has zero presence in most countries in the SADC region, according to Kairu, while companies selling excisable goods such as alcohol bully most countries.
“We are usually bullied by these companies because usually they are the biggest employers, they will use raw materials from your village so we often get bullied to allow most of these companies to get away with zero tax payments or are given tax breaks.
“It is important to think how we are desensitising some of this excisable goods within our countries to make sure that we are just not levying tax just like that but taxing in a way that avails more resources domestically,” he said.
Any country that does proper taxation of corporates, digital services and redesign tax incentives as well as rethinking how luxury goods are taxed will be able to move forward in terms of domestic resource mobilization, Kairu says.
Taxation of extractives is also key. He urged countries to design their systems in a way that will ensure that companies involved in mining are paying their fair share of tax.
Asked about Illicit Financial Flows, Kairu revealed that commercial activities today are the biggest contributors to financial flows at 65 percent compared to criminal activities and corruption, which are at 30, and five percent respectively.