How can African governments balance the budget required for physical and social infrastructure with taxation required for economic growth?
Around the world, we are seeing a shift in economies, an acceleration of the pace of globalisation, changing models of tax administration and a rapid succession of legislative and regulatory changes.
The present economic situation is driving governments around the world to restore their public finances by raising tax revenues. While the African continent continues to provide unique opportunities, the lack of global growth is taking its toll on the region with some African countries performing better than others. In this atmosphere, African governments are faced with a stark dilemma, between maximising revenue for physical and social infrastructure versus leaving businesses to reap their own profits for reinvestment and employment.
With increasing pressure faced by multinationals, enforcement has now also become a common means of raising revenues with certain African revenue-enforcement agencies being given explicit and implicit incentives to raise revenues above and beyond voluntary compliance, this is at the same time giving rise to increased tax controversy.
Since every country has its own specific challenges and needs, individual nations therefore need to come up with their own approach to how they straddle the line between addressing the needs of their constituencies and playing by global rules that have traditionally been created by the developed world.
Multinationals need to be aware that they will have to be properly engaged if they are to make their voices heard. However, at the same time they must also understand that their fair share of taxes needs to be paid.
In the end a better environment for business and a better dialogue with government needs to be created. What is being sought is a better result for all – namely an improved economy, with more jobs created, in an environment where infrastructure development can continue apace. Can this be achieved? With hard work and proper communication, the right tax policy can certainly be the catalyst for a thriving business environment.
Keith Engel is the Africa tax policy leader for EY